Research On Relationship Between Coke Futures And Spot Market

It has been three years since the coke futures contracts officially listed and traded in China Financial Futures Exchange. The volume of transactions on the coke futures has reached millions of hands. The coke futures contracts have been actively purchased and sold in our domestic future market. We can say that the coke futures market has been matured based on the observation of its overall market liquidity and the strength of the holding institutions’ risk control capability. But how can we make sure the coke futures market is playing a significant role in the function of price discovery, hedging risk and managing financial assets as we have expected? There is not a unified conclusion yet in this area. How does the coke future work on the spot market and what kind of role the coke future is playing? Whether it can adjust the phenomenon of extreme fluctuations in the spot market to a certain extent? Will the coke futures contracts provide the market with more investment and arbitrage opportunities? These problems we mentioned above are now the primary concerns of the financial organizations and the academic territory.In this paper, we construct a continuous time series data to test the relationship between coke futures and spot market under the framework of statistical measurement. First of all, we employ the MBk cointegration test containing an unknown number of breaks. And then build the VECM model, combined with the impulse response analysis and variance decomposition methods to realize the dynamic equilibrium analysis of the coke market between futures and Spot. Finally, I applied BEKK-GARCH model to China’s coke futures and spot market to examine the volatility spillover relations.Empirical results show that there is a long-run relationship between coke spot and futures market. Besides, the future market offers a guidance of the spot market. On the other hand, there are some obstacles between futures and spot price conduction mechanism as a result of futures market trading and inadequate participation. Compared with the future market, spot market has better information absorption ability, and more than 37% of the spot market’s variance decomposition is from the future market. So the function of the future market to stabilize the financial markets should be strengthened. The research of volatility spillover through empirical analysis found that there exist a two-side spillover effect between the two markets, but spillover from the spot market is much stronger than that from the future market. On the basis of the above empirical results, this research also provides the institutional investors a chance to make profit by using some proper strategies. For the interrelated government divisions, this study provides them with a meaningful reference in design more effective and efficient policies which can promote the coke futures market and enhance the efficiency of the market risk control.