Research On Price Discovery And Hedging Function Of Chinese Hog Futures Market

Pork is the main meat consumption product for Chinese residents.China has ranked first in the world in terms of annual pork production,consumption and pig production.Pork industry is an important part for Chinese economy.In recent years,the price of pork in China has become more volatile,which has had a significant impact on daily consumption and the national economy.As the first live agricultural product futures variety in China,live hog futures were officially listed on the Dalian Commodity Exchange on January 8,2021.The price discovery function of futures market can slow down the volatility of spot commodity prices,and producers can hedge their risks by using futures.However,Chinese hog futures have been listed for just over two years,so whether the hog futures market already has price discovery functions and whether hedging with hog futures can effectively reduce risks are two issues that need to be studied in depth.This paper studies the price discovery function and hedging function of Chinese live hog futures market respectively on the background above.Firstly,this paper analyzed and summarized the production status,demand status and fluctuation characteristics of hog prices in Chinese hog market,and found that the scale of Chinese hog breeding industry is low and the fluctuation of hog prices shows the phenomenon of "hog cycle".We also analyzed the operation of hog futures since its listing two years ago,and found that the scale of Chinese hog futures market has been expanding,and the liquidity and activity of the market is relatively high.Then,the price discovery function of hog futures was studied empirically,using grey correlation analysis,Johansen co-integration test,VECM model,Granger causality test,impulse response analysis,variance decomposition analysis,and price discovery contribution rate calculated based on I-S model and P-T model to comprehensively measure the intensity of price discovery.The degree of the price discovery function in Chinese hog futures market is comprehensively studied.Finally,OLS model,ECM model and ECM-BGARCH model are applied to measure the optimal hedging ratio of hog futures,and the hedging effect of hog futures is measured by the Ederington index.According to the research in this paper,conclusions are as follows: Firstly,hog futures price always guide the hog price,and the hog futures market owns a certain price discovery function and need to be improved.Secondly,the optimal hedging ratio calculated by ECM model works best,but the ratio of using hog futures for hedging function to reduce the risk of hog spot market is not high,indicating that the hedging function of Chinese hog futures market needs further improvement.In the end,some sensible political recommendations are provided for enterprise and government.