The Empirical Study Of China's Agricultural Product Futures Market Price Discovery Function

Futures is an important financial derivative products, is developed from the spottrading, with high liquidity, risk control and flexible features, with the new kinds of futures commodities listed continually from the three futures exchanges in China, the futures markets is going into a period of rapid development and prosperity, and it is necessary to research on the fundamental functions of the markets.In the modern economy, the very important futures market has two main functions: price discovery and hedging. Price discovery is timely and effectively to pass market information into asset prices, it can reflect the market’s efficiency. If futures markets are operating effectively, it will have good ability of price discovery. Hedging is buying or selling the equal futures when buying or selling the actual. After a period of time, the profit and loss in futures trade could make up to that provoked by the trade of actual. Price discovery is more meaningful than the hedge, since effective future prices reflect the fundamentals of information that is the key to hedging. The analysis of Price discovery mechanism not only helps to understand the role of information in different markets within the formation of different price, but also to understand the futures and cash market information transmission mechanism, so as to formulate the appropriate hedging strategy.In this paper, correlation analysis, unit root test, co-integration test, Granger causality test, VAR model, impulse response function and variance decomposition and other methods were used in the empirical research of China’s soybean futures market price discovery function. The results show that:(1) China’s soybean futures prices and spot prices have long-term co-integration relationship. (2) Soybean futures prices and spot price relationship between the one-way Granger relationships. (3) Soybean futures play a basic role of market price discovery.