Empirical Research On The Futures Market Hedging Of Chinese Agricultural Products

Our country has been a super agricultural country since the ancient times, the development of farmers and agriculture-related industries have profound influence on our economy. With the further expansion of agricultural trade, spot trading has been unable to meet the investors’ needs of their daily economic activities. And the demand for hedging, which is based on the spot market, has promoted the development of futures market. Hedging is one of the three basic functions of futures. And by buying and selling futures contracts, hedgers might decrease/reduce the risk of price fluctuation which brings by trading. At present, China’s agricultural futures market is in full swing; however, hedging problems still confuse so many investors. Therefore,the following paper is an empirical research on hedging ratio of agricultural futures market and its performance. It will provide the theoretical basis for the country’s modernization and professional construction of our agricultural futures market. It will also lay the theoretical foundation for the further expansion of agricultural futures market trading and help correctly guide the market to develop in a healthy way.The following paper takes samples on the prices of agricultural products futures and spot of Dalian Futures Exchange, which starts from Jan.2,2014 to Dec.31,2014,245 pairs in total.The empirical results indicate that whether it is static or dynamic hedging model,they are both able to effectively reduce the price risk and achieve the prospective hedge target. Overall, whether it is the most basic OLS model or its derivations, VAR models and ECM model, their estimate of hedge ratio and performance are roughly the same. Since there’s no significant difference, choosing OLS model, considered overall,would be both effective and economical. Compared to static hedging effects, dynamic hedging effect is better. In this paper, it selected ECM-GARCH model and BEKK-GARCH model to study hedging. And the BEKK-GARCH model has got the highest hedging performance, which shows that the BEKK-GARCH model is the best model for agricultural futures hedging. The results will provide guidance for agricultural futures investors to hedge in our country.