Will Multiple Delivery Reduce The Hedging Efficiency Of The Benchmark Delivery Location Of Futures?

In 2004,corn futures were re-listed on the Dalian Commodity Exchange.And corn futures stipulated that the main delivery locations of corn futures were Dalian,Jinzhou and Yingkou.Among them,as a port city with convenient transportation,Dalian has unique geographical conditions,and it is located in the Northeast which is the producing area of corns in China.Thus,Dalian becomes the benchmark delivery location of corn futures.And corn futures is a kind of agricultural product futures with the largest spot scale in China.Therefore,the entities of corn market could use the price discovery and risk aversion functions of corn futures and improve the market competitiveness.But our country cancelled the temporary purchase and storage policy in 2016,the corn stored in the three northeastern provinces and Inner Mongolia Autonomous Region urgently needed to be released and digested,and the price volatility of corn market had increased.Meanwhile,corn futures market needed to match the changes of spot market in a timely manner and increase the scope and capacity to cover the related industries of corns.It is the most important problem for Dalian Commodity Exchange,which is how to add more corn producing areas to the delivery location of corn futures,increase the delivery capacity of corn futures market and expand the delivery scope without affecting the status of the original Liaoning port as the main delivery location.This problem also has an important practical significance for the development of corn futures market in China.Therefore,in September 2016,Dalian Commodity Exchange added Heilongjiang Province,Jilin Province and Inner Mongolia Autonomous Region as corn futures delivery areas and added delivery warehouses in Songyuan City,Changchun(Yushu)City,Jilin Province,Suihua City,Heilongjiang Province and Tongliao City,Inner Mongolia Autonomous Region.The number of delivery locations had changed from 3 to 7 and the new delivery warehouses were enabled in the C1709 contract.Dalian Commodity Exchange expanded corn delivery area could further increase the number of corns for futures delivery.The main purpose of Dalian Commodity Exchange is to increase the liquidity of corn futures trading and improve the hedging efficiency of the corn futures market without affecting the status of the original Liaoning port as the main delivery location.But the actual effect is not clear.it remains to be academic circles to study this problem.Therefore,this paper analyzes and studies the impact of changes of the delivery location on the hedging efficiency of the benchmark delivery location which is the most important delivery location of corn futures and put forward relevant policy suggestions.Therefore,this paper selects the data of about ten years before and after the change of the delivery location of corn futures in 2016.that is.the spot price data of various corn delivery locations from 2010 to 2020 and the futures price of C1101-C2011 contract.After removing abnormal contracts,there are totally fifty-nine corn futures contracts in this paper.Based on the change of corn delivery locations and the resulting differences in spot market,this paper studies its impact on hedging efficiency of.Dalian,the benchmark delivery location of corn futures.Therefore,the paper selects the number of delivery locations,the mean of the maximum spot price difference between the delivery-locations and the maximum difference of the spot price volatility between the delivery locations as explanatory variables.And this paper selects futures trading volume,futures open interest and the ratio of daily average futures trading volume and open interest as control variables.After performing the unit root test and the cointegration test and establishing the vector error correction model for the variable data,this paper uses the multiple linear models for regression analysis and performs the robustness test.The empirical results are as follows:(1)When the delivery locations of corn futures increase,the hedging efficiency of benchmark delivery location will increase.both of which change in the same direction.Dalian Commodity Exchange should further optimize the design of futures contracts to promote the liquidity of corn futures and make their trading more active.(2)When the maximum difference of the spot price volatility between the delivery locations increases,the hedging efficiency of the benchmark delivery location will decrease,both of which change in the opposite direction.When Dalian Commodity Exchange chooses a new corn futures delivery location,the new delivery location should have a small difference between the spot price of benchmark delivery location and have a good correlation with spot price.(3)when the corn futures trading is active and the futures liquidity is high,it will increase the hedging efficiency of the benchmark delivery location of futures contracts.The Dalian Commodity Exchange should promote the futures contract design,improve the liquidity of corn futures and increase the activity of transaction.The innovation points of this paper:(1)This paper studies the impact of changes of corn futures delivery locations and related spot market differences on the hedging efficiency of benchmark delivery location in China in detail and gives relevant policy recommendations.(2)This paper finds that after adding new delivery locations of corn futures,the hedging efficiency of the benchmark delivery location has improved.The result is contrary to the conclusions of relevant foreign studies,which reflects the difference between the domestic and foreign corn futures markets.(3)From 2011 to 2020,corn futures market and related warehousing,delivery and other systems have been gradually improved in China.This paper Uses the corn-related data from 2011 to 2020 to process and analysis is conducive to enriching the research on corn futures market in China.The research conclusions of this paper have the policy implications as follow:(1)The government should promote the development of corn market system and stabilize price fluctuations of the corn spot market.(2)Dalian Commodity Exchange should further increase the delivery locations of corn futures,improve the capacity of delivery,expand the scope of delivery and improve the corn futures delivery system.(3)Dalian Commodity Exchange should improve the design of corn futures contracts,improve the efficiency of futures trading,enhance the activity of the corn futures market and increase liquidity of corn futures.These measures will increase the number of participants and futures trading volume of corn futures market in China,which ultimately improve the risk resistance capability of the corn futures market and promote the continuous improvement and development of the corn futures market in an all-round way.