Study On Co-movement Of Cotton Futures Market For China And The US

Along with the globalization of economic development and the deepening of financial liberalization, the mutual connection and influence among global financial markets have become closer, which has displayed obvious linkage strengthening trend. Futures markets is one of the important parts of financial products trading market. It is necessary to study the linkage between the Sino-US futures markets. Since listing for cotton-related enterprises, cotton futures provide decision-making support for cotton farmers, cotton market price discovery, risk-averse and passing on information to make a larger contribution. Both the volume and the amount of cotton futures occupy a pivotal position in the futures markets.With China’s rapid economic development, capital market constantly improving and economy’s more and more dominant position in the world, linkage between the futures markets at home and abroad has presented enhanced characteristics gradually. Food safety problem in our country is worsening, and commodity pricing problem is becoming the focus of attention. As the production and import country of cotton, information transfer and China’s pricing status all over the world is an important problem. This paper will supply an empirical research regarding the two problems, discuss the relationship between our country’s cotton futures market and the US, make sure the pricing status of our country cotton in the global market, and put forward relevant policy suggestions for the reality of the development of China’s cotton futures market.This article selected China’s Zhengzhou Futures Exchange and United States cotton futures on the New York Mercantile Exchange as a research object, selected two Exchange cotton daily price index data as variables. Based on comparison and summary methods of the linkage on the market at home and abroad, the paper chose the DCC-GARCH model to analysis dynamic linkage between the cotton futures markets in China and US. Besides, the paper chose the extensive use of Co-integration, Granger causality and Error Correction Model. The study between Sino-US cotton futures markets was divided into four steps. First, it described the statistical characteristics of data analysis and stationary test. Second, based on the theory of cointegration and error correction model, it studied the long-term and short-term equilibrium relationship between Sino-US cotton futures markets price index. Third, it used the Granger causality test to determine the guide relations between cotton futures price index of two markets. Forth, it established the dynamic conditions model (DCC-GARCH Model) of the Sino-US cotton futures return series, and analysis of dynamic correlation between the two markets.This study got following conclusions:(1) Zhengzhou and New York price index series are non-white noise process, but return series are white noise process. Unit root tests show that both of cotton futures price index series are stationary sequence orders, and return series are Stationary series.(2)There is a long-term equilibrium and stable relationship between the Zhengzhou and New York cotton futures market, and New York cotton futures market has a deep influence on Zhengzhou market by the linkage analysis of cotton futures market both China and US. Meanwhile, there exists short-term dynamic relationship between two cotton futures markets.(3)New York and Zhengzhou cotton futures prices are bidirectional Granger causality, which means New York and Zhengzhou guide each other in cotton futures price.(4) Abased on different conditions of the static and dynamic related condition, the two markets are correlated. Facts have proved that the cotton futures market present enhanced situation on linkage both China and US gradually.Futures markets are important components and the most active part of financial products trading market. Therefore, study of linkage between the futures markets is very meaningful. The research on linkage between cotton futures markets at home and abroad can enrich content of linkage theory system. This helps to capital market correlation and measure of global economic integration degree and helps provide theory support for countries to formulate financial policy, capital market policy. Also has provided a reference basis for global market futures investors to invest international portfolio investment and prevent global financial risk.The innovative methods are as follows. The paper first used the futures price index instead of the closing price of the futures contract to construct a continuous price time series. The dates can avoid loss of price information. Second, this article included not only the analysis of the linkage between the two markets, but also a preliminary discussion of the cotton futures market pricing, according to market linkage analysis. This is not seen in other literature.