Investigation On The Influence Of Spot Market Structure To Price Discovery

The futures market, an important part of the financial market, is playing a more and more important role. This paper focuses on price discovery, which is one of two basic functions of futures markets, and market structure theory is introduced into this study. The paper can be divided into theoretical part and empirical analysis part to study the impact of market structure on price discovery.In the theoretical part, the concept and content of the market structure are elaborated firstly, and find that the market structure is a continuous variable which is between Complete monopoly and Perfect competition, this situation can be described by the index of market concentration. And then plenty of detailed analysis of price discovery can be put into two categories:linkage of the futures and spot markets and the dominant position in the price discovery process. On those bases, this paper tries to figure out the impact of Complete monopoly and Perfect competition on the specific performances of price discovery separately, and then lays great emphasis on the Oligopoly Market which is most common in real life. At last, combined with the market structure, this paper makes a comprehensive analysis of spot prices and futures prices, and then makes a conclusion:for on hand, there is a positive correlation between the linkage of the futures and spot markets and the degree of monopolization of the market; for another hand, there is a positive correlation between the ability of spot market in the price discovery process and the degree of monopolization, while a negative correlation can demonstrate the connection between the ability of futures market in the price discovery process and the degree of monopolization.In the empirical part, this paper choose to study the influence of the market structure of China’s steel industry to the performances of price discovery of Rebar through the comparative analysis, and find that:the market concentration of China’s steel industry decreased by around6%during2009to2011,at the same time, the ability of Rebar futures market in the price discovery process increased by about5%,what’s more, the linkage of the futures and spot markets is becoming more and more perfect during the three-year period. Therefore a conclusion can be made that the empirical part supports the theoretical part.In the end of this paper, some targeted suggestions are recommended for the regulators and participants of the futures market according to the specific purpose, and make some consideration for the futures investors in the view of market structure.