The Development Of China’s Futures Market Institutional Investor Empirical Study

Institutional investor is an important component of the futures market. This essaystarts from the analysis of institutional investor structures of both domestic and internationalfutures markets; theoretically and empirically verifies the role played by institutional investorsfor promoting efficiency, fairness and stability of futures market; and specificallyrecommends for developing institutional investors.First of all, this essay clearly defines what institutional investor is; analyses types ofand historical and current situations of both domestic and international institutional investors.This essay analyses the investor structure of both domestic and international futures market,points out that the development of institutional investors is a universal characteristics ofmature markets. After detailed data analysis, it is found that the trading volume of individualinvestors of China futures market accounts for more than90%market share, which is in sharpcontrast to the international futures market whose trading volume of institutional investorsaccounts for more than70%market share. Currently the investor structure of China futuresmarket is not conductive to the market functioning. Firstly, individual investors who “LONGincreasing/SHORT decreasing” may be manipulated by the minority of large speculators,causing price confusion and irrational fluctuation as well as affecting the functioning of pricediscovery of futures market. Secondly, most of the futures contracts provide less liquidity,seriously limiting the ability for hedging institutions to choose contracts and largely impactingthe effect of hedging. Thirdly, as a matter of fact, the general public is not suitable for futurestrading. High participation rate of individual investors seriously impacts the stability offutures market and is not conductive to the role of investment tool that futures market plays.Secondly, we empirically analyze the domestic and international white sugar futuresmarket with a number of tools, such as Eviews and SPSS. The study1) examines thecorporate investor’s impact on efficiency, liquidity and fluctuations of the futures market; and2) compares the difference in regulations and trading rules between domestic andinternational market. The result shows that institutional investors, especially speculative andarbitraging institutional investors significantly contribute to development of pricingmechanism, stabilization and prosper of the market as well as improvement of efficiency.Finally, as mentioned above, the transition from small and medium sized individualinvestors to institutional investors is not only an important signal of market maturity and inherent condition for market development, but also the unique path leading to healthy growthof the futures market. The essay suggests: creativeness and improvement of China futuresmarket; improvement of laws and regulations of China futures market; the balance of marketsupervision and innovation; promoting the development of the domestic futures brokeragecompanies; creating an investor-friendly ecological environment; training futurespractitioners.