Empirical Research On Price Discovery Function Of China's White Sugar Futures Market

Price discovery and hedge is the basic function of futures market, which has important function to the supply which stabilizes spot market price and regulates a market, And the price discovery takes the core position among all the function. The white sugar future appeared on the market in the Zhengzhou Commodity Futures Exchange on January 6,2006, marking the establishment of China's white sugar system. The white sugar future has been one of the most chippies breeds in the futures market and its influence has been increasing after four years. Under the background like that, it is of great importance to analyze the price discovery function of abroad white sugar futures market and find out the countermeasures, which benefits the later development of this market.This thesis firstly analyzes theoretically the price discovery function of the futures market. In order to provide empirical study with theory basis, it is introduced in the first place in the second part that the meaning and realization process of the price discovery of futures market. Then it respectively interprets the mechanism of the price discovery of futures market with Holding-cost theory and Warehousing theory as well as its special foundation of transaction mechanism. In the end of the second part, the factors on the realization of the function of price discovery are analyzed from the aspect of the futures market and that of spot market, which points the concrete direction for the suggestion on the policy.Then this thesis introduces the development Status of China's white sugar future market. This part firstly narrates briefly the listing process and the key features of the white sugar future, secondly analyzes the factors of the change of white sugar future's price, finally summarizes the operation of the white sugar since its listing.Basing above theoretical analysis, this thesis makes empirical study on the price discovery function of China's white sugar future market. This study adopts investigative methods from Econometrics especially time series, and constructs a system of empirical analysis which is from simple to advanced and progressively increasing, with the purpose of making a comprehensive and thorough empirical inspect on the function of price discovery of china's white sugar future market. This thesis selects the weekly settlement prices of the white sugar future and their corresponding spot price, the extended span of which is from January 6,2006 to April 30,2010, then takes Correlation analysis, ADF test, Johansen co-integration test, VECM analysis, Granger causality test and Garbade-Silber model to analyze the price discovery function of the white sugar future market. The results show that, there is a long-term equilibrium but no Granger cause between the future price sequences and the spot Price sequences, and the future price takes a weaker part than the spot price in the realization of the price discovery function. To the conclusion, the price discovery function of China's white sugar future market has not been brought into play completely.In order to improve the efficiency of the price discovery function of China's white sugar future market, the following measures should be employed as this paper cultivating the institution investor, releasing new future breed, developing Exchange for Physicals, perfecting the spot market. Finally the path of further study is put forward.This article has two main innovations, one is choosing the white sugar future as study, the other is the choice of data, which not only collects the newest data, but also chooses the Settlement Price as test data.