Empirical Study On Relations Between Futures Price And Spot Price In Shanghai's Metal Market

The twenty years Metal futures market of development history is a gradual improvement process, With the greatly increasing of futures transaction volumes and the new kinds of futures products listed continually in China, Especially a new non-ferrous metal futures of lead is expected to list on the Shanghai Futures Exchange of this year, the Metal futures market is going into a period of rapid development and prosperity, Financial markets are the core of the modern Market economic system,while the futures market has become an important part of the financial market, It is highly leveraged provide the possibility to obtain high yields for the speculators, so attract large sums of money into this markets and it is become the most vibrant places, As the development of China's economy, there is more and more fierce competition between domestic and foreign enterprises, business owners increasingly need to use the hedging function of futures markets to hedge the business risks because of the price fluctuations of raw materials or products, the futures price and spot price relationship has been a hot area of academic research at home and abroad.Relations between Futures Price and Spot Price in Metal Market have been extensively investigated in Western countries, Domestic scholars mostly have made many theoretical analysis, With the development of econometrics, some domestic scholars also makes many quantitative analysis, but more research using traditional route, The general line of research are:First, domestic scholars applied stationarity test to the futures price and spot price series, and used EG method to study the sequence of the long-run equilibrium relationship if the sequence of non-stationary, then they established vector autoregression model of the two price series, and constructed the Vector error correction model which was based on the VAR model and cointegration test to study the sequence of the short-term dynamic relationship, Finally, Granger causality test, impulse response functions and variance Decomposition method etc adopted to analyze the causal relation and response speed of information between the futures prices and spot prices, and roughly measured the contribution degree of futures market and spot market of the formation of price. This paper reviews the classical theory of relationship between the futures prices and spot price, and analyzes the long-term relationship and the short-term dynamic relationship between the futures prices and spot prices which based on the composition of futures prices and futures price formation theory. Theoretically, futures prices should accurately reflect the expected spot price in a mature futures market, Then this paper broadly reviews the literature of the theory and empirical research on the relationship between the futures prices and spot prices, By comparing the domestic and foreign research methods and routes to find the point of author's research breakthrough, thus found that the research method on relationship of the futures prices and spot price in China by the domestic scholars is mostly used the traditional methods of foreign countries, As the copper futures is the first species in China's futures market, then there is a lot of research on relationship between its futures and spot price, but most of the study is limited to the research methods of qualitative and rough quantitative analysis, and no more accurate measured the contribution degree of futures market and spot market of the formation of price. at the same time the research literature of the zinc futures is less because of zinc futures contracts is listing late, Then, the author described in detail the theory and methods that was used in this article, its including: ADF unit root test, Johansen cointegration test, vector error correction model, variance decomposition and the common factor model, and in the common factor model author specifically describes the permanent - temporary model and information share model; Finally, this paper analysis empirically two representative metals futures species(copper and zinc) on the basis of the above methods.This empirical analysis of the objects selected two representative metal species of copper and zinc, the futures price used copper and zinc futures closing price that is listed on the Shanghai Futures Exchange, the spot price used the daily average spot prices of 1# copper metal and 0# zinc. The empirical analysis show that:Copper and zinc futures prices and spot prices series are not stationary time series through ADF unit root test, and after First-order differential treatment copper and zinc futures prices and spot prices series showed a marked stability, that the price series is first-order single whole, then we establish the unconstrained VAR model for the price sequence, and found that the unconstrained VAR model of copper and zinc prices sequence reached the optimal when the lag order is 2, so Johansen cointegration test model's optimal lag order are 1, In the above premise, we are used Johansen cointegration test to the copper and zinc of shanghai, and found that there are long-term equilibrium relationship between the futures prices and spot prices for copper and zinc; and the vector error Correction model of copper and zinc show that, the Error correction coefficient of two error correction coefficients models are less than zero, the model are in line with the reverse correction mechanism, that is, when the price will be corrected in the long run when its deviations in the short term, and the t statistics of the error correction coefficient of copper and zinc of shanghai show that, the spot prices were significantly affected by the long-term equilibrium relationship, and for the futures price, the impact of long-run equilibrium relationship was not significant (t statistics were significantly greater than 2); This suggests that the spot market was more sensitive to the deviations of long-term equilibrium status, when there is deviation from long-term equilibrium status, primarily through the adjustment of the spot price to re-establish equilibrium, Error correction term has little effect on futures prices (t statistics are relatively small), In the constraints the reverse error correction mechanism, the copper spot price to adjust the rate of 0.65 in order to achieve long-term equilibrium, if we compared to the two metal species of Shanghai, we found that the adjustment of the copper spot market faster than zinc spot market. Next, we analyze all the difference coefficient as explanatory variables, we can see that, in the short term, the spot price of copper is mainly affected by the impact of the error correction terms, subject to the last issue of futures prices and spot price changes are small (t statistic does not Significant), the spot price of zinc is also primarily affected by the error correction term, but compared with the copper, the spot price of zinc is more affected by the changes of the prior period futures prices and spot price (t statistic than the large copper), The results can be drawn from the above analysis, the copper and zinc futures prices of shanghai can lead the spot prices rather than the spot prices lead the futures prices; and variance decomposition show that, copper futures short-term price volatility is mainly affected by previous futures price volatility, For zinc futures, its similar to the results obtained with copper, Comparison of two metal species can be found that the price discovery function of the zinc futures markets slightly weaker than the copper futures market; Through permanent - temporary model and information share model we can be drawn that, copper and zinc futures market plays completely a dominant role in the price discovery in the permanent - temporary model, contribution for 100%, while their spot market did not have Price discovery. And in the information Share model, copper and zinc spot market price discovery process of the contribution were 11.14% and17.41%, However, copper and zinc futures market price discovery process of the contribution were 88.86% and82.59%. Conclusions can be drawn from the above, after twenty years of development, metals futures markets of shanghai are becoming an effective futures market, that is metals futures market of shanghai can incorporating or react to new information more rapidly relative to their spot market, thereby futures markets exhibit dominance over the contemporaneous price discovery and information transmission between futures markets and their corresponding spot markets, so the futures prices of shanghai can provide the basis for the expected spot market price,and also provide the experience and reference to the development of China's futures market.