Price bubbles and market integration in global sugar futures markets

Huilian Huang and Tao Xiong

Journal of Applied Economics, 2020, vol. 23, issue 1, 1-20

Abstract: We use a Supremum Augmented Dickey–Fuller test to detect price bubbles in the world’s most important sugar futures markets (ZCE, NYBOT, and LIFFE) from 2006 to 2017. Results show 19 bubbles with characteristics similar in quantity, duration, and price variation. We explore whether sugar futures prices in ZCE, NYBOT, and LIFFE are integrative in a full sample with an improved hybrid method of directed acyclic graphs and structural vector autoregression. Based on the bubble test, we examine market integration in the sugar futures markets during explosive and unexplosive episodes. We find the impact of price bubbles on market integration and explore the cause of price bubbles in a macro-economic environment. Empirical results show futures markets are more integrative when price bubbles occur. We find sugar futures price bubbles reflect supply and demand imbalance, market participants are extremely sensitive, and market information exchanges frequently during the bubble period.

Date: 2020
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DOI: 10.1080/15140326.2019.1693202

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