The Study Of The Price Linkage And Hedging Effectiveness Between Zinc Futures And Spot Market In China

Since The Zhengzhou Commodity Exchange has been established, Commodityfutures market has been playing a more and more important role in the economic life.Recently years, with the rapid development of China’s high-tech, the use of zinc can beseen everywhere. From the battery, to galvanized steel widely used in automobile andconstruction industry. Zinc has been closely linked with the development of the nationaleconomy. At present, a part of demand of zinc in China still relies on import. The Ratioof dependence on foreign in the demand of zinc concentrate is still at about30%. And,with the domestic large-scale mining, Companies are expanding rapidly smeltingcapacity. Because of the heavier losses, the smelting enterprises’ yield has been pulleddown. Considering of the pricing power and stable income of smelting enterprises, thestudy of operation rules between the zinc futures and spot market, has high practicalsignificance. In order to gradually expand domestic zinc’s pricing right and reduce theprice risk confronting the enterprises, and also due to lacking of study in domestic zincfutures, this article select the zinc futures listed on the Shanghai Futures Exchange asthe object to study the linkage effect between futures and spot market and the hedgingefficiency.The price of spot and futures changes every day, and the two markets are closelylinked by each other. Before the futures has been launched, it is difficult to determinezinc spot price and the import price for zinc spot enterprises. With the development ofzinc futures in China, in order to promote the improvement of zinc spot and futuresmarket, in this paper, we study linkage effect between zinc spot and futures market andits hedging efficiency.In the study of the linkage effect between futures and spot market, this papermainly uses some of the novel model, including GS, GGS and Chan model, todetermine the linkage effect between zinc futures and spot market. This article startsfrom the GS model to analysis first, and this model contains two equations. The twoequations are the influence equation of futures price impacting on the spot price andspot price impacting on the futures. After estimating the two equations, it showed thatthe result lacks of economic significance. And then, we improve the GS model,introduce Granger causality variables and basis into it to extend the GS model to GGSmodel. Through analysis of the GGS model, it has similar results with the Grangercausality tests. The futures market do not have a significant influence on spot price, however, spot market has a significant influence on futures price. And then we can get asimilar conclusion through Chan model.By the analysis of linkage effect models, we know that interactions exist betweenfutures market and spot market, but the effect of futures is weak. This also explains that,zinc futures market in China is based on the spot market, at the same time, it also guidethe price trend of zinc spot. But its guiding role has not been fully played now.This article is divided into two stages on the hedge effectiveness studying. Firstly,this section calculates hedging ratio between zinc futures and spot through OLS, ECM,and ECM-GARCH model, and then analyzes the hedging efficiency. After estimating ofOLS model, we get a superior ratio than the completely hedging model. This sectionalso carries out the ADF unit root test and high order ARCH test, and finally, we get thedynamic hedging ratio.In this paper, we use three models to calculate the hedging ratio through two stages.By comparison, the error correction model has higher effective hedging ratio, and thedynamic hedging model and the least squares models are at the second. And then, weuse hedging effectiveness to measure the effectiveness of hedging. This paper putsforward the hedging ratio hpwhich consider the hedging ratio, and it improves theindicator of hedging effectiveness measurement. This indicator can reflect the hedgingeffectiveness of different model in the unit hedging ratio.Zinc futures market has operated for many years in China, futures price of zincgradually guide the spot price. But for various reasons, the activity of zinc futuresmarket in China declines year by year. Participation enthusiasm is fading gradually. Inorder to make the zinc futures market come back to the benign development track, thispaper analyzes several current existing problems in zinc futures market of our country,and proposes targeted solutions. We should improve the futures trading from institutionand the level of investors, and also improve the investment environment, to promotezinc futures making greater contributions for the spot market.