An Empirical Research On China’s Agricultural Futures Price Discovery Function

China is a large agricultural nation. Agriculture is the foundation of our national economy. Agriculture as the first industry is directly related to people’s real life. It has been attached great importance by our leaders. Agricultural futures market is an important part of agricultural products market. It is developed from the spot market. It has the risk control flexibility, liquidity higher characteristic. In recent years, new futures varieties appear in several futures exchange constantly. China’s futures market developed into a new stage.In modern economy, futures market plays two functions:price discovery and hedging. The price discovery and hedging functions of futures market play a very important role to stable the spot market price fluctuation and adjust the relation between market supply and demand. Efficient market theory is that, in a completely effective market, the price can reflect all information accurately and fully. According to this theory, the information that affects the futures market price changes is not more than the spot market. First, it should be produced information that has an impact on the future spot market price. And then this information reflected in the futures market and caused the futures price change at the same time. And thus, from the futures price changes to "discovery" the future spot price. Therefore, we can through the measurement analysis of the futures price and spot price in the future to examine the price discovery function of the futures market and the effectiveness of the market operation.The first part of this paper is the introduction. First introduces the research background, and then introduced the significance of the research. Then introduce the research status at home and abroad. Introducing the research status with an early start in foreign research in this area, with the development of econometrics, these methods are widely applied to agricultural futures market price discovery function. Our domestic scholars start late on the futures market price discovery function, and the researcher is not a lot. Finally, Introducing the structure and the innovation and deficiencies of the paper. The data taken there may be deviation due to limited resources. And it cannot be given a deeper explanation on EViews analysis results due to limited capacity. The second part of this paper is an overview of the agricultural futures price discovery function theory. The first describes the emergence and development of the futures market, including the emergence and development of the foreign futures market, and the emergence and development of the domestic futures market. Then introducing two theory of the futures market price discovery function, hold cost theory and warehouse theory. Holding cost theory is that the futures price is equal to the spot price plus storage costs, in dynamic equilibrium, the spot price is equal to the futures price minus storage costs, futures prices become an important reference for the target of the spot price. However, this theory cannot explain the reality of the spot price is greater than the futures market, it is called upside down phenomenon. Later, Working proposed storage theory, he pointed out that the storage price includes storage costs, risks and opportunity costs, marginal net position must contain the cost of the marginal storage cost, marginal revenue cost and marginal cost of risk. Warehousing theory indicate that the futures market reflect the expectations of the market, with strong price discovery function. The last part of this chapter describes why the futures market has price discovery function. First, the supply and demand information is centralized, market liquidity. Second, traders are familiar with commodity prices, high quality of the information. Again, the transparency of trading activities, open and fair competition and contribute to the formation of a fair price. Finally, the price is continuity.The third chapter describes the selection and processing of the data. The data in the time selects form2007-08-24to2012-08-24five years of data. Weekly settlement price of the futures prices are taken from the Zhengzhou Commodity Exchange, spot prices are taken from the National Grain and Oil Wholesale week average transaction price.The fourth part of this article is the analysis of empirical studies conducted in the three agricultural products. The first introduces the research methods, including the method of stationary test, cointegration test, error correction model, Granger causality test and impulse response and variance decomposition test methods. Then use the five methods to analysis the three agricultural products. The results show that it exist a long-term cointegration relationship between the cotton futures price and the spot price, and is a two-way guide relationship between them, but spot prices play a leading role. It exist a long-term cointegration relationship between the wheat futures price and the spot price, and is a two-way guide relationship between them, not affect the role of the degree of difference between the futures prices on the spot price and the spot price of futures prices. It exist a long-term cointegration between rapeseed oil futures prices and spot prices, but is a single guide, futures prices guide spot price.The fifth part of this article firstly make a summary of current affairs section, and then raised the factors hindering the price discovery function of China’s futures market, the final proposed policy recommendations to promote China’s agricultural futures market price discovery function.