Empirical Study On Cointegration Effects Of China’s And International Futures’ Prices

Together with China’s rapidly developing economy, China’s futures marketshave gone through an explosive development with increasing trading volumes andgrowing pricing power. Unlike most studies which have put their research focuses onthe cointegraion relationship between futures and spot prices，this article is aimed atstudying the dynamics between prices of copper，soybean，cotton and wheat futurescontracts traded in Chinese and international futures markets, by applying techniquessuch as the Johansen cointegration test，the vector error correction model, Grangercausality test, Cholesky variance decomposition and impulse response analysis.Data of daily closing prices of copper，soybean, cotton and wheat ifatures tradedin Chinese and international futures markets have been collected and transformed intothe unit of USD/ton to facilitate the comparison. Also, two versions of VEC modelsare constructed using different pairs of price data (same-day prices, today’s Chineseand yesterday’s international price) to solve the non-synchronous trading problem.The empirical results indicate that cointegration relationship exists betweenprices of copper futures traded in SHFE and LME, soybean futures traded in DCE andCBOT. However, no such relationship has been verified for cotton and wheat futurestraded in CZCE and CBOT. Furthermore, we discovered a two-way feedbackrelationship between prices of domestically and internationally traded copper andsoybean futures while the LME copper futures have a bigger impact on SHFE copperwhile CBOT soybean is more responsive to DCE shocks.We also examined the reason for the absence of cointegration relationship forcotton and wheat futures. Based on the quantitative analysis on spot prices and thequalitative analysis on the macro environment regarding commodity demand andsupply, we propose that the main reason can be attributed to the spot marketdifference，which is caused by import and export quotas imposed on cotton and wheatwhich leads to the separation of the domestic market rfom the world market.