Quantitative Research Of China’s Futures Market Weak-form Efficiency

The our country Futures market has built on the beginning of 90’s in 20 centuries, developed up to now and nearly 20 years’ history. The Futures market has a lot of basic function, such as the price discovery, hedging etc., and it plays an important role in the development process of our country. Particularly, after our country joined in the WTO, it provides the tool of the dispersion and transfers the price risk for our country the professions such as agricultural product, metals and energy etc., contributing to the stable national economy. Meanwhile, the Futures price is dominant in domestic and international trade, usually regarded as the function of the basis price. The nature of Futures market makes it as the center of price formed. It would and can win more power of the strength that our country internationally fighting for price formed. But, the function of Futures market normally runs has very closed contact with the efficiency of Futures market, for the efficiency of the Futures market is the foundation that its functions normally work.Most of existing literature shows that:if selected different period of sample datas, it often gets different results. Therefore, studying the effectiveness futures market of China has a certain phase. Taking into account the twice consolidation of futures market of China, due to non-standard market, trading confusion, frequent regulatory interventions and other factors, data of that period does not reflect accurately under market of normal conditions, and thus, this paper selects the data after the two periods of consolidation. By the normative analysis and quantitative analysis of the futures market efficiency of China, conduct investigations is needed. Shanghai copper futures market is one of the most mature futures market to China, and. subject to other futures market, spot prices limited frequency of transactions, this paper select the Shanghai copper futures market to research, through a typical market to examine whether futures market of China was weak-form efficient.Most of the research has been mostly from the futures price series due to random walk process and the idea of starting two kinds of arbitrage interval methods. However, as testing different methods of futures price series, often come to inconsistent conclusions, sometimes come to opposite conclusions. Arbitrage interval method of setting the operation range is very sensitive to set the interval with a high degree of subjectivity, while the interval to set different and directly affect the measure of arbitrage gains. Thus, there are some limitations of the above-mentioned two methods.Based on the past research, tasting Efficient Market Hypothesis, comparative analysis is applied, for the efficiency of the specific meaning of stock and futures markets. As the futures market, the cause of originate and period of its functions, this paper attempts to study, from the perspective of the relationship between the current price on the futures market efficiency of China. On this basis, due to futures market of China, trading volume having significant seasonal effectiveness, but the effectiveness of the futures market could be affected, therefore, the introduction of seasonal dummy variables. Main contents of this article are as follows:Firstly, the cointegration regression to be used to study the efficiency of the futures market, for the long-term period efficiency of the market. Regression residuals as estimated by the phenomenon of serial autocorrelation exists, therefore, a specific interpretation of empirical results is limited.Secondly, the use of error correction models to analyze the effectiveness of futures markets in the short term, empirical results show that the period of the current price due to the existence of short-term memory, futures market of China does not have the short-term effectiveness. At the same time, there are significant seasonal effects.Thirdly, the use of GARCH-M-VAR model for further study, the empirical results show that the model adequately extract the sample information, January period and the period of February Shanghai copper futures market reached a weak-form efficient, while the March period, in April Issue Shanghai copper futures market, period, and in May failed to meet the weak-form efficient. At the same time, there are significant seasonal effects.Finally, the respectively cointegration regression error correction model and the GARCH-M-VAR model estimation results of a detailed analysis, causes to explain. In this article, empirical results and the status quo of futures market of China, on the basis of investigation, make recommendations accordingly.This article has three features:First, Most of literatures has been chosen the closing price to research, this paper select the settlement price of futures contract. The settlement price is the price of a futures contract traded that day according to volume weighted average price; if the day is non-traded price, the settlement price of previous day will be settlement price of that day. The closing price of a futures contract is the final trading day of a transaction price. Moreover, due to China’s Futures Exchange Price Limit system, deposit the collection is based on settlement prices. Therefore, the settlement price includes more market information than the closing price, better reflecting the specific situation of the futures market of China.For most of the research literature has been studied only a few or a single continuous futures contract price series, there is insufficient capacity for the sample data, or object of study a single issue. Therefore, this article selected from the nearest delivery month futures price five consecutive sequences, respectively, and a different expiration month.Second, the perspective of study:This article from the functional point of view of the futures market, examining the relationship between the periods of the current prices on the futures market efficiency of China. But also the effectiveness of emergency under the futures market, the study provides a train of thought.Third, analysis model:This option is the traditional period of price risk premium model, most of the existing empirical literature, methods are raw. Therefore, this paper, cointegration regression, error correction model and the GARCH-M-VAR model, empirical analysis are applied, and on this basis, because of futures market of China, trading volume and there is significant seasonal positions, therefore, the introduction of seasonal dummy variables in an attempt to study the choice of methods to make some meaningful exploration.