China's Steel Futures And Spot Price Relationship Study

This papers analyses the long equilibrium relationship between the fu(?)ure price and the spot price of steel, their capabilities of price discovery, and volatility spillover effects in our country, with several Econometrica measures such as Johansen cointegration model, variance decomposition model, common factor models and bivariate EGARCH model. The results indicate that:(1) there is a equilibrium relationship between the future price and spot price of steel, and the future price leads the spot price in the short run, but vice versa not, with the implications that the steel futures exchange comparative actively and that information transmits more quickly;(2) the spot market of steel overwhelmingly dominates the price discovery process, and, by contrast, the future market hardly contributes to the long equilibrium prices, which suggests the information transmitting in the future market are almost useless; and(3) a significant bidirectional information flow is found between the two markets, which means innovations in one market can predict the future volatility in another market, but the volatility-spillovers effect from the futures market to the stock market is more strong.In the sum, the future market and the spot market of steel are very correlative in our country. The information can transmits more quickly in the future market and influences the spot price a lot in the short run, but this information is useless, disturbs the spot price behavior and increases its volatility. These facts suggest that the future market of steel is still immature.