The Effect of Structural Change on Information Flow Between the U.S. and Chinese Agricultural Futures Markets

Kuei-Chih Lee, Ching-Chung Lin and Tung Liang Liao

Chinese Economy, 2013, vol. 46, issue 4, 25-48

Abstract: This article examines the effect of structural change on the flow of information between the agricultural futures markets of the United States and China after 2002. Structural changes are found for futures price series in exchanges in both countries—specifically, the Chicago Board of Trade, the New York Board of Trade, the Dalian Commodity Exchange, and the Zhengzhou Commodity Exchange. The structural change generally occurred during the 2007-8 financial crisis. The two cotton futures markets are integrated, as are the two soybean futures markets, indicating that a long-run equilibrium relationship exists in their respective related markets. However, the Chicago and Dalian corn futures markets were not integrated after the structural change. The Chinese corn and soybean markets are found to play a leading role in transmitting information to the U.S. markets, a result that confirms the importance of China as a major producer and consumer of a range of international agricultural commodities. The results for cotton futures indicate that the New York market does not dominate the Zhengzhou market in informational efficiency. Both markets are efficient at incorporating information on a daily basis.

Date: 2013
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