Studies On Price Discovery And Volatility Spillover Effect Of Live Hog Futures In China

For a long time,China’s live hog price fluctuates violently and frequently,which brings great uncertainty to the production and operation of farmers and industrial enterprises and makes it difficult to stabilize profits.On January 8,2021,China’s first live-delivery futures variety,the live hog futures contract,was listed on the Dalian Commodity Exchange,injecting new vitality into the live hog market.The price discovery function is the most basic function of futures market.If the live hog futures market runs smoothly and effectively,it will play a guiding role in the arrangement of future production and business activities of breeding and slaughtering enterprises,which contributes to the long-term steady development of hog industry.Therefore,this paper mainly studies the linkage relationship between China’s live hog futures and spot market prices,and explores the actual effect of the price discovery function of the futures market.The dynamic correlation between the two markets is analyzed from the perspective of volatility spillover effect.This paper first explains the price discovery function and the volatility spillover effect from the theoretical level.The development status of live hog spot and futures market in China is summarized.A total of 243 sets of live hog futures and spot prices data from January8,2021 to January 7,2022 are selected.By constructing a VECM model and using Granger causality test,impulse response,variance decomposition methods,the actual extent of the price discovery function of China’s live hog futures market is empirically analyzed.Four methods including information share method are used to quantitatively calculate the information contribution dominant degree of the futures market.In addition,based on the yield data,the GARCH model is constructed to analyze the price fluctuation of China’s live hog futures and spot markets.Furthermore,DCC-GARCH model and BEKK-GARCH model are constructed to carry out empirical research on the dynamic correlation and volatility spillover effect between the two markets.The empirical results show that there is a long-term equilibrium relationship between the live hog futures and spot markets in China.The price discovery function of live hog futures market has been preliminarily embodied.The futures market is the dominant market that contributes to live hog price discovery information.There is a two-way asymmetric price fluctuation spillover effect between the live hog futures and spot markets in China.The volatility spillover effect of live hog futures market is more significant and its transmission of risk and information is faster and more effective.Finally,based on the research results,this paper puts forward reasonable suggestions for the development of China’s live hog futures market.