Paper Infomation
Price Discovery Function of Brazilian Agricultural Products Futures Market Based on VECM-PT-IS and DCC-MGARCH-t Models
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Author: Wenchi Su
Abstract: Agricultural products futures market is an important part of the financial system, and its basic functions of price discovery and hedging are of great significance to the long-term stability of agricultural products market prices and the accurate reflection of real supply and demand relationships. In China, as the agricultural futures market has not been established for a long time, the industry's trading guidelines have been in the construction period. Brazil is one of the world's largest producers of agricultural products and has an important position in the global agricultural market. As a developing country and a BRIC country, Brazil's agricultural futures market is more developed than that of China. This thesis analyzes the leading and lagging relationship, the difference in the degree of price contribution and the volatility spillover effect of the two markets by comparing the price discovery function of the futures market of three agricultural products, namely soybean, corn and sugar in Brazil. It analyzes the specific impact of the price discovery function of the futures market compared with the spot market through the model, and puts forward effective policy suggestions that can serve China's agricultural futures market. In this paper, the average daily settlement price of the period spot provided by the Brazilian Agricultural Futures Exchange from January 1, 2017 to December 31, 2019 is selected as the object of empirical analysis, and the data smoothness and correlation between the data are examined using the ADF smoothness test, the Johansen cointegration test with the Granger causality test in addition to the innovative citation of the VECM error correction model, Public Factors (PT-IS), and DCC-MGARCH-t model to study the price mutual guidance relationship, the degree of contribution difference and volatility spillover effect of the two markets. The empirical results show that there is an obvious mutual guidance relationship between the prices of the two futures markets, and the contribution of futures prices is significantly higher than that of spot prices, reflecting that agricultural futures have the function of price discovery. And the volatility spillover effect between the two markets of agricultural commodity futures is bidirectional, and the impact of internal volatility is often greater than the impact of external shocks.
Keywords: Agricultural Futures, Price Discovery, VECM, PT-IS, Price Contribution, Volatility Spillover Effect
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