Price discovery in the agricultural commodity market in China - An empirical research on the corn and soybean markets

Abstract

The present paper investigates the relationship between the futures price and the spot price of corn and soybeans from 2015 to 2018 in China. It is intended to measure the efficiency of the price discovery function in some Chinese agricultural commodity futures markets. To conduct the test effectively, some complex statistical methods are adapted. Augmented Dickey-Fuller (ADF) test implies that the time series for researched objects are non-stationary but there are stationary after the first difference. Phillips-Perron (PP) test also obtains the same conclusion that the time series are non-stationary. Johansen Co-integration test indicates that there is an integration equation between the spot and futures price of soybean in the long term while there is no such co-integration between the spot price and the futures price of corn. Furthermore, for the Vector Autoregressive (VAR) Model, it shows that the futures prices for corn and soybean do have a positive influence on the relative spot prices in the short run. For the Vector Error Correction Model, it turns out that the spot and futures price of soybean affect each other positively in the long run. Last but the most important, the Granger-Causality test states that the futures price for both corn and soybean granger causes the spot price in the short run.