Research On The Impact Of COVID-19 On The Price Discovery Function Of China’s Futures Market

In late 2019,the sudden outbreak of COVID-19 in China caused panic among the masses across the country,and it was also closely watched by other countries,and global industry,manufacturing,transportation were hit to varying degrees.Global financial markets have also suffered from severe volatility due to the pandemic caused by COVID-19,which has largely affected commodity prices.Demand for many goods has declined,and the COVID-19 pandemic has hit the world economic system.Due to the uncertainty about COVID-19,the instability of the macroeconomic environment,the sharp fluctuations in commodity prices and the turmoil in financial markets have made more and more investors and real companies aware of risk aversion,and the demand for hedging by investors in the market has increased.Because the COVID-19 outbreak quickly and effective control,the stable price of commodity futures in China in the futures market,which quickly won the hearts of the people,and more and more investors and real enterprises began to turn to the commodity futures market to seek risk aversion.This phenomenon more closely links the spot market with the futures market,which is also the practical basis for improving the price discovery function of the futures market.Based on the above background,this paper will analyze the impact of the impact of COVID-19 on the futures price discovery function from the perspective of investors.During the COVID-19 pandemic,investors turned to the futures market to avoid risk or speculate on arbitrage.In addition,in order to prevent commodities depreciate largely,some real enterprises will choose the futures market for hedging to avoid risks that are difficult to predict in the future.Therefore,more and more investors and entity enterprises begin to enter the futures market,when the price of the futures market and the real price due to the deviation due to the epidemic,investors in the futures market will arbitrage on the commodity futures,so that the futures spot price difference of the commodity is controlled to a reasonable range,to a certain extent to prevent the large fluctuation of China’s commodity prices.Then,this paper constructs a rational expectation model and analyzes the impact of exogenous shocks on the discovery function of futures prices,and the results show that the occurrence of the new crown epidemic will increase the risk of the market,the reflection strength of private information will be impacted,and the private information contained in futures prices will decrease.Affected by the COVID-19 pandemic,hedgers will increase their need to hedge in order to avoid market risks.In addition,the greater the impact of the pandemic,the more revealing the futures and spot markets will be.After that,empirical research was carried out on the basis of theoretical models.Two representative futures varieties are selected from each of the three major commodity futures varieties of agricultural futures,metal futures and energy futures,and through the study of the price discovery functions of the six commodity futures markets of cotton,palm oil,gold,copper,coke and thermal coal,the daily price data from January 1,2018 to December 31,2021 is selected,and March 2,2020 is used as the dividing point of the commodity futures market before and after the outbreak of the new crown epidemic.Information share model and other methods to compare and analyze the changes in the price discovery function of China’s futures market before and after the outbreak of the new crown epidemic.The results show that after the COVID-19 outbreak,the price discovery function of cotton,gold,copper,thermal coal and coke futures markets is stronger than that of the spot market,and for palm oil,the price discovery function of the futures market before the COVID-19 is stronger than that of the spot market,but the price discovery function of the spot market after the COVID-19 is stronger than that of the futures market.In addition,the price discovery function of four commodity futures,cotton,palm oil,gold and copper,has weakened after the COVID-19 outbreak.Therefore,COVID-19 will have a negative impact on the price discovery function of China’s individual commodity futures markets.Based on the above analysis results,this paper puts forward targeted countermeasures and suggestions to better develop and improve China’s futures market from the two aspects of protecting the legitimate rights and interests of Chinese futures investors and improving China’s futures market system.