Empirical Research On Price Discovery Of China’s Gold Futures Market -Based On 5 Minute High-Frequency Data

China’s gold market has gradually realized the transformation from spot transaction into future transaction since China’s gold futures has founded in Shanghai Futures Exchange in 2008. Futures market has two functions:price discovery and hedging functions. The price discovery of gold futures market means the gold futures market can react to new information before the stock market and guide the spot price to make the market keep equilibrium. Price discovery mechanism of the futures market can reflect the effectiveness of the futures market so that it can promote the development of the spot market. Thus this paper makes empirical research on the lead relation between gold futures market and spot market and the degree. Not only can it measure the efficiency of the current gold futures market, but also provide useful suggestions to the gold producers, traders and investors.Due to the late development of the gold futures market, domestic scholars have not come to an agreement on the issue whether the China’s gold futures market play the price discovery roll. And they haven’t made further dynamic research and quantify the contribution of the price discovery accurately. Therefore, we analyze the lead relation between the gold futures price and spot price based on 5 minutes of high frequency data to test the price discovery of the gold futures market.Firstly, this paper reviews the documents and literature of theoretical study and empirical analysis about price discovery, then we show our guideline and innovation of this paper. Secondly, this paper introduces the price discovery mechanisms of futures market and the trading system. Moreover, we elaborate the relevant models systematically which underline the following analysis. Thirdly, this paper investigates the price discovery of the gold futures market through Johansen co-integration test, Vector Error Correction Model and so on from a long-term and short-term point of view respectively. Fourthly, we apply Permanent-transitory model to measure the different price discovery contribution rates of the gold futures market and spot market. Lastly, we study the lead relation between futures and spot market on different quantiles.The study results illustrate that there is a long-term co-integration relationship between China’s gold futures market and the spot market, and they guide each other in the short term. But the gold futures market has not yet completely played the price discovery roll, and the spot market plays a leading roll in the price discovery.Therefore, this paper makes analysis on the reasons why price discovery function of gold futures market is not obvious. In the same time, we propose policy recommendations to improve the efficiency of gold futures market.