China's soybean futures contract : China's integration with the U.S. soybean futures market Public Deposited

http://ir.library.oregonstate.edu/concern/graduate_thesis_or_dissertations/0z7091657

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  • In 1996, China started to increase its annual soybean imports at a tremendously high speed. It has become one of the most important soybean import markets for the world's largest soybean producers: the United States, Brazil and Argentina. In the meantime, the Dalian Commodity Exchange (DCE), a Chinese soybean futures market, has developed very rapidly. Its soybean futures price has become an important market signal for Chinese soybean producers, crushers, importers and other soybean market participants. These two market developments not only highlight the motivation of study on Chinese soybean market, but also provide possibilities of study on it. In order to have a thorough understanding of the Chinese soybean market and have a better forecast of the possible future development of the Chinese soybean futures market, this thesis attempts to analyze the soybean futures price relationship between the Dalian Commodity Exchange and the Chicago Board of Trade (COBT) on the basis of the law of one price theory. The law of one price asserts that the prices of a common commodity in two markets will converge to an equilibrium price after trading the commodity between the two markets, assuming no market barriers to this trading. This thesis hypothesizes that the Chinese soybean futures market has been integrated with the world's largest soybean futures market, the Chicago Board of Trade, in the late I 990s. In this thesis both the conventional OLS and relatively more recent cointegration test estimating techniques are applied to the DCE and the CBOT soybean futures prices and soybean ocean shipping freight rate for the study period from 1996 through 1999. The estimated results from the OLS procedure show that the DCE soybean futures price has not been integrated with the CBOT soybean futures prices in the short run. But the bivariate cointegration test procedure shows that there is a long-run price relationship between the two markets. The estimated results reveal price deviations between the two markets in several cases. These price deviations indicate the necessity for further exploration of them in future study.
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