Study On The Formation Mechanism Of Agricultural Products Price In Futures Market

In recent years, with the continuous completing of the market-orientedeconomic system and the appearance of requirement of risk management after theentry of China into WTO, great changes have happened in domestic commodityfutures market. Corn, soybean oil, cotton, sugar and other new kinds of agriculturalproducts futures appear in market one after another, and volume of transaction hasbeen renewing the historical top-point. Futures market has made a greatcontribution to our country such as adjustment of agricultural structure, contactingthe product area and sale area of grain, improvement of agricultural companies'ability to competition, share of pricing right of international agricultural productsand many other aspects, it has been an important system grantee for sustainabledevelopment of agriculture. At the same time, rapid development in practice hasalso called for creation of new theories about futures market. Our work proceedingfrom such reality, based on ponder about the sound and steady development of ourcountry's agricultural products futures market, establishes the forming mechanismof agricultural products futures price as study topic, aiming to reveal the inherentlaw in the formation and change of agricultural products futures price.Our work is different compared with former domestic and foreign scholars'researches which proceed from the relation of spots or spots and futures. It is on thebasis of historic review and systematic analysis of agricultural products futuresmarket's development, analyzing the formation mechanism of agricultural productsfutures price from the perspective of bid, target and exchanger's motive. In addition,it has compared influence weight during the formation of agricultural productsfutures price between the two factors, material object and trader's behavior, finallyit establishes a new train of thought to study the mechanism of formation ofagricultural products futures price proceeding from financial commodity pricing.Similar with stock, bond and other financial commodities' pricing mechanism,agricultural products futures market is equal to an information processing factoryfrom the viewpoint of pricing process, where information is input and price isoutput. The factors of natural environment such as weather, plant diseases andinsect pests, the factors of social economy such as agricultural policy and financialcurrency, and the volume of market information transaction, the volume of holdingdeposit and so on, compose basic factors in the formation and change ofagricultural products futures price. These factors' interaction decides the fluctuatingtraits of formation and change of agricultural products futures price. Therefore, thispaper selects the method of TN to analyze the basic factors of formation andchange of agricultural products futures price. The result shows that the factors ofnatural environment like weather, plant diseases and insect pest have higher cause-effect, the factors of social economy like agricultural policy, financial currency andthe factors of market like transaction volume, the volume of holding deposit arehighly effected factors. It demonstrates that natural factors are the most importantfactors which induce the formation and change of agricultural products futuresprice. Then we can draw a conclusion that in the agricultural products futuresmarket, basic factor is unitary and psychological factor is strong, which identifiesthe quality of financial commodities pricing in the formation and change ofagricultural products futures price.Since the 1980s, the impetuous development of commodity fund shows thatprofit rate in agricultural products futures market doesn't conform to normaldistribution of standard finance based on EMH, which is called "financialdifferentiation" existing in agricultural products futures market. Therefore, we needtheory of behavioral finance which approaches to real market situation to recognizeand reveal the inherent law in the formation and change of agricultural productsfutures price.Theory of behavioral finance is formed by some new theories such assynthetic psychology, decision science and modern finance which spring up sincethe 1990s. It takes pricing in financial market as a process of psychology, includingthe process of recognizing, feeling and determining the market. In this process,systematic cognitional deviation and behavioral deviation result in investor'sdecision deviation and assets pricing deviation. For agricultural products futuresmarket, the formation and change of agricultural product futures price is not onlyinduced by the factors of natural environment, social economy and marketinformation, but also by cognition and behavior deviation in investors' judgmentand decision.Because of the features of lower contract value, lower margin rate andfrequent, great extent fluctuation of price in agricultural product futures,agricultural product market has been a market leaded by the structure of randominvestors for a long time. In such market, overconfidence, reaction deviation, lossdisgust, regret disgust, psychological account, confirmation deviation,conformity-to-public behavior, feedback mechanism and so on appear notably dueto various decision deviation induced by investor's psychological features andmood traits. They influence the formation and change of agricultural productsfutures price through effect on investors' decision behavior. For example,overconfidence is the most commonly behavior and cognitional deviation ininvestors, while it's also very hard to control. In agricultural products futuresmarket, it always results in investors' frequent and overtrade. And loss disgust,regret disgust, psychological account and confirmation deviation and otherbehavior together with cognition deviation will prevent investors from makingnecessary decision to stop loss. Continuous loss will evoke fluctuation of futuresprice in great extent by amplifying mechanism of margin level, form theconception of "trend" in the technical analyzing. At the same time, the followingcrowd behavior and feedback mechanism will strengthen the continuation anddevelopment of the "trend" further. Therefore, people always take agriculturalproducts futures market as a market where the psychological factor is outstandingand it dominates the market.Different from CAPM, BAPM relates coefficientβ that decide the expectantrepay of bond (futures contracts) with behavior, the expectant profit of bond isdecided by "behavioral betas". Behavioral Beta is the relative slope of the effectivecombinations of mean-variance, i.e. beta of tangent mean-variance-effect assetscombination. Because noise trader will effect price of bond (futures contracts),such behavioral beta has relation with the tangent of mean-variance effectivecombination, but not with market combination. For example, in stock market, noisetraders tend to estimate growing stocks unduly, correspondingly proportion ofgrowing stocks in market combination is higher. To correct this deviation, weshould improve the proportion of growing stocks artificially in tangentmean-variance-effect assets combination compared with market combination. Fromabove we can learn that , BAPM not only accepts market efficiency limitedly, butalso succeeds limited reason, limited automatic-control and limited self-benefitpursued by theory of behavioral finance. Therefore, the main distinction betweenthe behavior-assets pricing model and capital-assets pricing model is the differentimplication of beta.Beta of BAPM is composed by two parts, i.e. basic risk and noise traders'additional risk (NTR), the formula is:BAPM β = NTR + CAPM βHere we think that in the antagonism that reasoning traders in agriculturalproducts futures market against noise trader, noise traders depend on themechanism of regressive selection, the equity premium of informationalaccumulation and price-amplifying mechanism, not only "create space for theirexistence", but also expel reasoning traders, get prevailing in the stocks market as aresult. In the guidance of successful-demonstration effect, new traders that justentry agricultural futures market and some former reasoning traders preciouslyexisted will become noise traders gradually. Meanwhile, the unitary and lastingnatural-environment factor in agricultural product futures market also provideenough time and space for noise trader's pricing adapted to basic information, andcreate loose and comfortable environment for noisy exchanger's existence anddevelopment. When the noisy exchanger establishes their leading status inagricultural futures market, agricultural futures market also accepts andacknowledges noise trade rules. When most traders become noise traders, previousreasoning traders become new "noise traders", and they start new adaptation andselection again. From the viewpoint of risk, when the trade rules established bynoise traders are accepted and abided, β in the behavior-assets pricing model ofagricultural products futures market should have dropped on the basis of standardBAPM. Therefore, ABAPM β should equal BAPM β minus some risk (DTR)which is reduced because of obeying noise trade rules. The formula is:ABAPM β = BAPM β -DTRI.e. ABAM β = NTR+ CAPM β -DTRIn the end, we takes the price fluctuant rate of DCE soybean index contractthat made by Wenhua Finance and Economics Information Limited Corporation asexplanatory variable, the changing rate of volume including each day, week,month's trade as explained variable, and uses SPSS software to analyze data. Theresult shows that in the process of soybean futures pricing in China, investors havecognitive dissonance such as heuristic and frame depending, finally verifies thetheory of this paper.