Based On Common Factor Model Of China's Agricultural Product Futures Market Research

With the approach of the21st century, the problem faced by agriculture, rural areas and farmers is receiving more and more attention from the whole society. The central government has laid emphasis on raising farmers’ income level, developing modern agriculture and constructing new countryside. Recent years, the No.1Central Committee’s Documents are all about solving the problem faced by agriculture, rural areas and farmers, which showed the government’s determination.In the process of solving the problem, the agricultural commodity futures market has played an important role. The traditional way of agricultural production has several limits. Usually the price in the spot market lags, so producing according to this price will suffer from price fluctuation, which will reduce farmers’income. The birth of futures market solves this problem. The two basic functions of futures market are price discovery and risk transfer, with the first being the basis of the latter. As a result, it is necessary to study the price discovery function of China’s agricultural commodity futures market.Presently, research abroad is quite rich, but seldom is China’s agricultural commodity futures market studied. Domestic studies mainly focus on cointegration, Granger causality, impulse response function and variance decomposition. But these models cannot quantitatively find out the proportion devoted by futures market and spot market respectively in the process of price discovery. The IS model and PT model employed in this study could solve the issue to a great extent. Hardly has these two models been used in previous domestic studies, and this is the greatest innovation of this study.In this paper, soybean, corn, wheat and cotton futures are investigated. Results show that the price discovery function of the agricultural commodity futures market in our country is quite good at present. Compared with spot market, the futures market dominates the process of price discovery. Spot price reacts to changes in futures price, but it doesn’t work in the opposite way. This means that the spot market in our country is not well developed yet. Besides, the correlation between the innovation of futures and spot market is not so high, which indicates that there may be irrational speculation in the futures market.At the end of this paper, some policy suggestions are made toward the problems found in the part of positive research. The suggestions are expected to further develop the agricultural commodity futures market in our country, and make it play a more vital role in solving the problem faced by agriculture, rural areas and farmers.