Our Empirical Analysis Sugar Futures Price Discovery Function

Futures markets have two functions: price discovery and hedging. It plays a veryimportant role on stabilizing prices and regulating supply and demand. As a majorcountry for sugar production and consumption，the steady development of the sugarindustry is related to national economy and people’s livelihood. If sugar pricesfluctuate wildly and frequently, sugar companies will face huge market risks. Sugarfutures appear on the market of Zhengzhou Commodity Exchange in2006, after eightyears of development, China’s sugar market price system basically established,trading system gradually improve, market operation stable and reasonable,discoveryfunction of sugar futures has been further improved. The emergence of sugar futures,gives sugar companies a way to avoid market risks by the function of hedging,stabilize production and operate activities. As an important part of China’s commodityfutures markets, whether sugar futures can give full play to the function of pricediscovery and hedging, not only impact on the development of the sugar industry, butalso affect the healthy growth of China’s futures markets.After summarizes the research of past scholars on futures, this paper analyzeprice discovery function of futures markets theoretically and empirically. The secondpart describes the causes of price discovery function of futures markets,characteristics and realization process, and introduces the influence factors of pricediscovery function from two aspects of spot market and futures market. The third partdescribes the current situation of the sugar spot and futures market in China, theinfluencing factors of sugar futures prices, and sugar futures investment value.Based on the above theoretical analysis, the fourth part empirical analysis therelationship between sugar futures price and spot price, include rising and fallingstages. In this paper, measuring methods include correlation analysis, ADF test, VARmodel, Co-integration test, vector error correction model, Granger causality test,impulse response function and variance decomposition model，in-depth discuss the relationship of the two markets. The results are:(1)In two stages, sugar futuresmarkets have a certain price discovery function of futures markets to guide the spotmarket price changes.(2)In two stages, sugar futures and spot prices have a long-runequilibrium relationship, but in the short run equilibrium relationship does not exist.(3)In two stages, futures markets account for over eight percent of price guiding role,spot markets account for less than two percent of price guiding role.Although the sugar futures markets can play a preliminary role, the developmentstage is short. There is a certain gap compared with developed countries. In order toimprove the efficiency of China’s futures, give full play to the price discoveryfunction, this paper presents three advises, including perfect spot market, regulatefutures market and develop institutional investors.