The Study Of The Characters Of International Iron Ore Futures Market

With the break of the iron ore price mechanism in2010, the iron ore pricingmechanism presents increasingly flexible, short-term trend and the iron ore price indexgradually becomes a major iron ore trading settlement basis. The Iron ore, as a kind ofcommodity, trends along the "long association-Spot-Futures" trend. China, as theworld’s largest consumer of the iron ore, has been in a passive state in the long-termmonopoly of foreign iron ore giant game, and it is difficult to totally have pricing powerof the iron ore pricing. That the iron ore price is controlled by others in the long-termhas brought Chinese iron and steel enterprises the huge production costs, severelysqueezing the profits of the iron and steel enterprises. With the gradually conversion ofiron ore to the pricing mechanism of indexation, it is a great opportunity for Chineseiron ore futures market. By making another form of long-term agreement transactionsthrough forward contracts trading of iron ore, the steel business not only gains theinitiative, but also actually makes China participate in the Game of the iron ore priceand have the pricing power.Based on this reason, This paper carries on the analysis of the real example of theIron ore futures market of Singapore by using the approaches of Fractal Theory. Westart from the validity of iron ore futures market and build a large number of empiricalmodels to study on the characters of the iron ore futures market. In order to provide areference of establishing iron ore futures market in China.This paper is divided into five main parts.The first part is the introduction. Introduce the background and significance of theresearch, present research at home and abroad of this paper, the main content andmethods of the research and contribution and weakness of this paper.The second part is the theoretical basis of the paper, introduce the EMH（effectivemarket hypothesis）and Fractal Theory.The third part mainly introduce the price system of International Iron ore futuresmarket.The purpose of this section is to highlight the importance of the iron ore futuresmarket in the global iron ore price system. We take the Singapore Iron ore futuresmarket as the real example in order to pave the way for the next chapter’s study.The fourth part is the analysis of the character of Singapore iron ore futures market.Firstly, the using of the unit-root test, the RW3linear auto-correlation test and the RW2nonlinear correlation test to test the validity of iron ore futures market do not help us find out if it meets the "Martingale" process, and therefore we are unable to find outwhether the market is of weak validity. I believe that we should adopt the fractal theoryto deep inspection from the rate of return normality test and yield R/S test respectively.Secondly, in order to measure the quality and efficiency of the iron ore futures market,the author uses ARCH model to analyze the volatility of iron ore futures market. Finally,in order to explore the price discovery function of the iron ore futures market, the authoranalyzes co-integration relationship between the iron ore futures market and the spotmarket by using the unit-root test, Granger causality test, impulse response function,variance decomposition analysis and so on.This paper can get the following conclusions:(1) By analyzing the characteristics of iron ore futures market in Singapore. Wecan find out that the iron ore futures is not an efficient market but a market havingfractal character, and non-cycle length of the iron ore futures yield time series inSingapore is about12days.(2) We can see from the analysis of Singapore’s iron ore futures price volatility thatwhen it comes to the severe volatility of the futures price, there is a significant ARCHeffect. This indicates that the iron ore futures market volatility statistically has spikeafter the tail characteristics and volatility clustering.(3) It can be found from the analysis of the future and spot price of iron ore linkagethat they are both Granger cause of each other. However it can be seen from the analysisof the results of the impulse response function and error correction model that theimpact of spot price that caused by future price rising is much larger than the impact offuture price that caused by spot price rising, which further demonstrates the absence ofthe right to speak of the iron ore price.The fifth part, which is based on the results of the empirical test of the fourth part,According to the actual situation of Chinese iron ore market, we try to provide somerevelatory proposals for the establishment of Chinese iron ore futures market.