China's Cotton Futures Market Pricing Efficiency Research

Cotton is the second‐largest agricultural products of the world beside food crops. It is an important raw material of textile industry which an important role in national economic development. China is one of the world’s largest cotton producer and textile‐producing countries, cotton is an important strategic materials which related to the major agricultural products of the national economy and national economic performance in China. The cotton industry is a long chain, including production, distribution, processing and consumption which related to many different aspects related to the economic operation of the industries and trades.With the continuous development of China, The China’s cotton futures market is being further reform and development. Under the new circumstances there are still no one do the research on the pricing efficiency of the cotton futures market. This paper will do the research on the relationship between the cotton future market and spot market in China and the relationship of China and the United States cotton futures market prices with the co‐integration analysis, unit root analysis, Granger causality test and error correction model (ECM model). This article have an idea that the future cotton market price and the spot market price has a long‐term stable relationship, Futures market prices has a guiding effect on spot market prices and this effect has a strong self‐correcting dynamic adjustment mechanism from short‐term fluctuations to the long‐run equilibrium, these illustrate that Chinese cotton futures market has the pricing function. After the research on the relationship between China and the U.S. cotton futures prices, we find that China and the United States cotton futures market price have a long‐term stable relationship, the United States cotton futures market prices has a guiding effect on Chinese cotton futures market and this effect has a strong self‐correcting dynamic adjustment mechanism from short‐term fluctuations to the long‐run equilibrium. This analysis shows that China’s cotton futures market falls behind the United States on the feedback of market information. In this paper we compared to the differences between China and the United States cotton futures market system and bring up policy proposals to improve the pricing efficiency of Chinese cotton futures market.Through this research, we can fully understand China’s cotton futures and spot markets, the correlation between Chinese future market and foreign futures market, recognize the level of China’s cotton futures market pricing efficiency, recognize the difference between the Chinese cotton futures market and the foreign cotton futures market. We can understand the direction to reform the cotton futures market in China and provide policy recommendations for promoting cotton‐related enterprises and farmers to further use of the cotton futures market.