Empirical Analysis On The Dynamic Relationships Of Domestic And International Zinc Futures Prices And Spot Prices

Since March2007the Shanghai Futures Exchange Station launched zincfutures, the contract trading volume of zinc increased gradually and which becomethe first once more in2009. The financial crisis in2008led to the continuous fallingof the zinc prices. Therefore, the risks that the zinc production and processingenterprises are facing becomes bigger and bigger, and more and more spot goodsenterprises regards futures hedging as a means to guide production and avoid therisks of price fluctuation. China has changed into a net zinc importer from a net zincexporter since2004, and the import dependency is rising gradually. As thesuperpower country in zinc production and consumption, what role should Chinaplay in the zinc market pricing in the world? Be the leader of the world’s zinc pricesor a participant of the pricing or only be a recipient of the world’s zinc prices? Whatkind of price impacted relationship exists in the international market? Is the pricediscovery function of zinc futures effective?The main objective of this paper is exploring and analyzing the pricerelationships among the international zinc futures market, China zinc futures marketand China zinc spot market-----whether the zinc futures prices in China has a strongcorrelation with the international zinc futures prices? Whether market integrationexists in futures market and spot market? How to carry out prices impact andinformation delivery among three markets? Whether price fluctuation has spillovereffect? Based on the research objectives introduces above, this paper analyzes theprice relationship among zinc futures price in China, zinc futures price in the worldand zinc spot price in China, the information delivery relationship and pricefluctuation effect through Cointegration test, Granger causality test, impulseresponse function and variance decomposition etc. according to market integrationtheory, fluctuation spillover theory, VAR model and GARCH model.In the study we come to the following main conclusions. First, there is a strong correlation among zinc futures prices in domestic and at abroad and the zinc spotprices in domestic, and the correlation coefficient is more than90%. Second,coordination relationship exists among the three markets.The study suggests that theintegration degree among each market is high; the information delivery among eachmarket can be carried out fast and the international zinc futures market plays leadingrole. The effect of the zinc futures in China is limited but the price discoveryfunction has been clearly demonstrated. Third, although China’s impact to theworld’s zinc futures pricing is limited, as the conductor in the middle of world’s zincprice and domestic zinc price, China makes domestic pricing more closed linkedwith world pricing. Fourth, price volatility spillover effects are more obvious.Volatility spillover effects plays consistent between spot goods and futures goods indomestic and the leverage effect exists. The bad news is greater than the good news.