Asymmetric price adjustment and price discovery in spot and futures markets of agricultural commodities

Zhuo Chen (), Bo Yan (), Hanwen Kang () and Liyu Liu ()
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Zhuo Chen: South China University of Technology
Bo Yan: South China University of Technology
Hanwen Kang: Monash University
Liyu Liu: South China University of Technology

Review of Economic Design, 2023, vol. 27, issue 1, No 6, 139-162

Abstract: Abstract This study investigates the relationship between spot and futures prices of agricultural commodities in China. Our analyses show that, first, no cointegration relationship is found between spot and futures prices of corn and wheat. Second, the cointegration relationship exists between spot and futures prices of rapeseed meal and soybean oil. Finally, the asymmetric cointegration relationship is observed between spot and futures prices of soybean and rapeseed oil. Moreover, the constant vector error correction model (VECM) and the time-varying VECM are used to calculate the relative contributions of the two markets in the price discovery process. From the empirical results of static and dynamic price metrics, the spot market dominates the price discovery process of rapeseed meal and rapeseed oil, whereas the futures market dominates that of soybean oil. The static price discovery metric indicates that the spot market dominates the price discovery process of soybean. Then, the dynamic price discovery metric indicates that the price discovery process of soybean is dominated alternately by the spot and futures markets. Results show that the time-varying model can better reveal the dynamic process of the relative contribution of the two markets to the price discovery process.

Keywords: Agricultural commodity price; Threshold effect; Price discovery; Market efficiency; Time-varying VECM (search for similar items in EconPapers)
JEL-codes: C32 G13 Q13 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10058-021-00276-1

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