Empirical Study On The Correlation Between China's Cotton Futures And Spot Market

China is the world's largest producer and consumer of cotton textiles,and about 70% of cotton textiles are exported to the United States,Japan,the European Union and other countries and regions.This year,affected by the trade war and the global economic contraction,the price of upstream cotton spot has also experienced violent fluctuations in the near future.The risks faced by cotton processing enterprises have increased sharply,and the supply and demand of cotton will also be affected.In order to control the impact of excessive cotton price volatility on cotton supply and demand,a well-functioning futures and options market is needed.As we all know,the subject matter of options is futures,and the effect of the application of option tools depends on the close correlation between the futures market and the spot market.The main functions of the futures market are price discovery,hedging,asset allocation,etc.The prerequisite for these functions to be fully utilized in the cotton futures market is to thoroughly study the dynamic correlation between cotton futures and spot prices,and to understand the real relationship between the spot market and the spot market.The operation situation,and find the correlation coefficient of the two,to lay a foundation for better use of the futures market hedging and risk avoidance.As China's cotton market has undergone many industrial adjustments in the process of development,the differences in industrial policies will affect the correlation between the two.Therefore,this paper will be based on China's cotton market2013-2018 cotton futures main contract and 3128 B spot data.During this period,it is divided into late storage period,target price period and trade war period.Cointegration test,Granger causality,vector error correction model,variance decomposition and copula function are used to(first-order)price spillover effect and The second-order moment volatility spillover effect is studied to explore the guiding effect of futures price on spot price,the risk contagion of futures market volatility to the spot market and the correlation of each period,and formulate the hedging strategy based on the correlation between the two markets.How cotton companies use cotton futures for hedging provides reference.The results show that the cotton industry has different price guidance and volatility transfer effects between cotton futures and spot under different policy environments and external environments.In the industrial policy environment of the temporary state reserve,the supply was artificially intervened,and the value discovery function of futures did not play well.The spot price guided the price of futures to a certain extent.The correlation coefficient between the two is only 0.16,and there is only one The volatility spillover effect.Since China's cotton consumption has been ranked first in the world for many years,the cotton price in the storage period is on a unilateral upward trend,and the hedging functionof the futures market has not been utilized by most cotton-related enterprises.During the target price period and during the trade war,the spot supply level is determined by the market.At this time,the price discovery function of the futures market can be exerted,and there is a price spillover effect.At the level of volatility spillover effect,there is a one-way volatility spillover effect during the target price period,and there is a two-way volatility spillover effect during the trade war period.In the perspective of correlation coefficient,the correlation between the two during the target price period is higher than that during the trade war period.The reason may be that the spot ginning factory is willing to price,so that the spot price does not truly reflect the market supply and demand equilibrium price.