Statistical Analysis Of Prices In China's Cotton Market

Future markets are important parts of market oriented economy, they make big influences on both domestic and international markets. A future market has two fundamental functions: risk evading (hedging) and price discovering. Based on former researches, to check the efficiency of a future market is to test whether the two functions act well. The tests can be done by observing long term relationship between future market price and spot market price.China is one of the largest markets for both cotton producing and consuming. The cotton market influents the country's textile industry, which means a lot to China's international trade or even to the GDP growth. China's cotton future market has been set up for nearly three years, it has been making positive influences, but it's still young and imperfect. So the research on this new market to see whether it runs in a right way would be necessary. To make sure the cotton future market in China has the two fundamental functions would be the first step.In this thesis, analysis based on statistical methods and the prices in both cotton future market and spot market. We used equation estimation, ADF test, Granger causes test, etc. to analysis the data. The tests were done with the help of the software Eviews 5.0. From these tests, we finally drew to a conclusion that the prices in future market and spot market are long term equilibrium, the prices in the two markets two-way cause each other. China's future market has, to a certain degree, realized the two fundamental functions.