Effects Of China’s Commodity Futures On Spot Prices Volatility

Futures market can help stock enterprise avoid systemic risk and improve the pricingefficiency of stock market. But in the futures market, a lot of risks exist. Recently, asglobal commodities prices fluctuate sharply, people think that it is the futures market thatincreases the volatility of stock market. So the function of futures market began to bedoubted about. Domestic and foreign economists have been concerned about the influenceof futures to the stock prices volatility. However, because of the difference of market andmethods, the conclusion is different, too.Around the theme “the influence of commodity futures to the spot prices volatility”and based on the development of China futures market, the author utilizes twomethods--the theoretical analysis and empirical diagnosis to discuss the question thatwhether the futures exchange will increase the volatility of the spot price. The result oftheoretical analysis is that futures can not only decrease volatility of spot prices throughimproving efficiency of spot pricing, but also increase volatility through irrationalspeculation. GARCH and virtual variable are used as empirical methods. The conclusion isthat agricultural futures decrease the volatility of spot price and the metal futures increasethe volatility of spot price. Based on this conclusion, the author offers the proposal of howto improve the fast development of agricultural futures market and the stable developmentof metal futures market. The proposal is improving the pricing efficiency, acceleratinginnovation, strengthening education for investors, changing investors’structures, andmoving spot enterprises participate in the futures market.