A Study On The Price Discovery Function Of China’s Metal Futures Based On The Copper, Aluminum And Gold Metal

At present, China’s copper production ranked second, aluminum production first, copper aluminum consumption highest in the world. At the same time, the non-ferrous metal trading of Shanghai futures market is also increasing. In2012, the copper and aluminum futures trading volume of Shanghai Futures Exchange continued to ranks second in the world and the gold futures trading volume of Shanghai Futures Exchange accumulated7.2218million hands, ranking the fourth in the world.Metal futures market boosts the development of the metal industry. Futures market helps metal industry to optimize allocation of resources, promotes the development of metal industry’s marketization and provides a risk management tool for the real economy development. Along with the development of the non-ferrous industry, the futures market, and the financial market, the influence of China’s determining the price of the global non-ferrous metal industry has been effectively improved."Shanghai Rules" and "Shanghai Price" have won the industry’s effective identification. The violent fluctuation of International commodity prices reflects the importance and urgency of using metal energy as a representative of commodity futures varieties to safeguard national economic security. Especially in the current most important period of China’s economic reform and opening up, in order to develop the real economy and participate in international market competition further, and to set up the words power of the metal bulk raw material which adapts to our country’s economy, has become China’s epoch-making responsibility of the metal futures market.This paper choose Shanghai copper, Shanghai aluminum and Shanghai gold as the research object from two child markets of the metal futures market--the basic and precious metals futures market. Selecting the three representative varieties avoids the limitations of a single variety analysis and makes the research more comprehensive. As delivery month closing to the delivery, the future price is strongly influenced by the spot price. In this paper, settlement prices which are three months from the delivery month would form a continuous sequence of prices. Those futures contracts could reflect the collective will of market participants that are often the most traded, most market participants, the most actively traded, and the using of settlement price can avoid the manipulation of prices. The using of a variety of methods empirically, layer and layer, logic clearer, empirical more system, avoids the oneness of simple methods and makes the empirical conclusion more reliable. Firstly, this paper analyzes the factors influencing metal futures prices from two child markets of the base and precious metal. Secondly, the chapter analyzes the influencing factors of metal futures prices from two fruit market of the basic metal and precious metal; The third chapter is the related theory about price discovery function of futures market, which mainly introduced the connotation, principle of economics, the system advantages and influencing factors of the price discovery function; The fourth chapter is the empirical analysis to the price discovery function of China’s metal futures. Firstly, we use graphic method and correlation coefficient method to check the consistency of the price changing trend of the futures and spot, Secondly using the unit root test to check the sequence stability, again using Johansen co-integration test and Granger causality test respectively test the long-term equilibrium relationship and long-term relationship causal direction of the price sequence. Then through the establishment of vector error correction model (VECM), the paper describes the short-term changing relationship between the futures prices. Finally, through the analysis of the impulse response and variance decomposition to the price series, we determine the influence degree between the futures and spot prices. Finally this paper gets the following conclusions:shanghai copper futures market has the highly efficient price discovery functions; shanghai aluminum futures market has the effective price discovery function; shanghai gold futures market does not yet have effective price discovery function and overall China metal futures market has initially had the function of price discovery. Finally combined with the actual situation of current Chinese metal futures market, we give the following five relevant policy recommendations:Actively develop metal spot market; improve the metal futures market further; improve the information effectiveness of metal futures and spot market validity; extend the delivery system, optimize the allocation ability of global resources; properly put-off the QFII and QDII, steadily advance metal futures market’s opening up. In the end, the paper gives the shortcomings and the direction of further research.Of course, there are some deficiencies in the articles. To perfect the research of this field, the directions of further research are given in this paper:First, with the new metal futures varieties listed, we can expand the research scope of metal futures, in a comprehensive, systematic grasp of price discovery function and market efficiency of each type metal futures market. Second, with continues improvement of China’s status in the international metal futures market,"China factor" has become necessary for the research of metal futures price discovery function. Putting the relevant factors of international metal futures market into the study of China’s domestic metal futures price discovery function can accurately reflect the comprehensive and authenticity of China’s metal futures market price discovery function. Third, as the advanced econometric model coming, we can choose advanced econometric model which are more accurate and closer to actual to improve accuracy and reliability of the research conclusion. Fourth, The paper metal studies futures price discovery function basing on the total time of three varieties of samples, but does not take the efficiency of the price discovery function of time-varying into account, which is a new direction of future research.