Empirical Research On Functions Of China’s Gold Futures Market

As international economy continues to slump and inflation pressure intensified,more and more investors pay close attention to the safety guarantee function of the goldand put the gold into their investment products. At the same time, China, as a majorpower consumption and production of gold, gold production and consumption are amongthe world’s first. Therefore the stability of the gold market is important to promote thewhole economic development. Shanghai gold futures market traded marked China’s goldmarket system preliminary established which provides investors with an importantfinancial tool to avoid systemic risk. How to use this derivative in China’s gold marketand avoid investment risk, especially systemic risk, has very important significance forinvestors.This article embarks from the current development situation of China’s gold futuresmarket. First, elaborating the gold futures market economic role of gold industry.According to different demand for gold supplier, and elaborating opportunities andsafeguard measures that they have after the establishment of the gold futures market inChina, which improve our country market economy system and satisfy the different riskpreferences of investors. Then this paper introduces the function of price discovery andhedging theory, which theoretically support the study of this article. Next, in the pricediscovery function, using the vector error correction model or other empirical methodsrespectively to analyze China’s gold futures market price discovery efficiency. Underdifferent methods,considering the futures basis respectively, gold futures prices of lag,short-term balanced and long-term equilibrium effect on the price discovery function,and draw a conclusion that China’s gold futures prices has not led spot gold, spot goldprices ahead of the futures price and spot market plays a leading role. Using the modifiedOLS method and error correction model analyze hedging function respectively, solvedthe insufficient that traditional OLS method has autocorrelation of residuals, thus betterdemonstrated that China’s gold futures market hedging function was preliminarilyrealized. Finally, pointing out problems that exist in the development of gold futures market.Those main performances are high transaction cost, the investor structure of unevendevelopment, lack of liquidity and legal regulatory coordination mechanism’imperfection. In order to solve these problems, on the one hand, improving the systemof China’s gold futures market, reducing transaction costs, encouraging reasonablefutures varieties, building up a diversified, rich varieties of futures market, andestablishing the legal supervision system, On the other hand, promoting innovation anddevelopment mode, leading into market-maker system and establishing a system oftrading adviser.