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Price Discovery in China’s Gold Futures Market: Empirical Evidence from Shanghai Gold Market

Author: ChangXing
Tutor: LiuPan
School: Southwestern University of Finance and Economics
Course: Finance
Keywords: Futures prices Spot prices Guide the relationship Vector error correction model
CLC: F832.54;F724.5
Type: Master's thesis
Year: 2011
Downloads: 177
Quote: 0
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Abstract

The financial crisis has been going on for nearly three years, and some even worry about a double-dip recession occurs. As the world's largest economy, the U.S. high unemployment rate (9.6%) and rising fiscal deficit (As of the end of fiscal year 2010, the budget deficit will reach a record $ 1.6 trillion, higher than the 2009 fiscal year $ 150 billion, equivalent to approximately 10% of the U.S. gross domestic product) the worrying; At the same time, by the Greek sovereign debt crisis triggered by the European sovereign debt crisis continue to spread, Spain, Portugal, Italy is also involved in the whirlpool, The euro zone's economic situation is not optimistic, investor confidence; In this context, the United States, Europe adopted a monetary policy of low interest rates and a series of economic stimulus policies; contrast, China's economy gross domestic product (GDP) in the first half of a year-on-year increase of 11.1 %, but the investment is still a major force for growth, not sustainable growth of the economy in the second half of the existence of the downside risks to the global economy is still fraught with uncertainty. The global market in the doldrums, gold market gold Guangcan. London spot price of gold soared to $ 1,232.92 in June 2010 from $ 754.6 in October 2007. Amount of dollar-denominated gold demand in the first half of 2010, an increase of 77% over the same period, the ETF is represented by derivatives investment growth of up to 567%. Futures market, the first half of 2010, the New York Mercantile Exchange (COMEX Division) standard gold futures trading volume totaled more than 23.35 million, an increase of 48%. Shanghai Gold Exchange total turnover of 3,171.57 tons of gold, an increase of 56.72%. Spot gold turnover of 834.59 tons, an increase of 48.49%; gold deferred transaction turnover of 2332.17 tons, an increase of 79.16%. January 9, 2008, the Shanghai Futures Exchange launched a futures contract, nearly three years now, the gold futures market run, whether achieved its proper function? For investors, gold of the spot price of short-term dynamic relationship would change, these issues are worthy of our empirical analysis to find the answer. Introduction, previous research on the gold futures price discovery mechanism for the review of the literature. First defined as literature review, focus on the period between the spot price guide; followed by a review of the literature to guide the relationship between futures prices and spot prices, from foreign to domestic, from other commodities and gold and the theoretical price discovery explore; Finally, the empirical methods used literature review, from the beginning of the least squares method to the subsequent cointegration and error correction model. The second chapter of supporting empirical theory analyzed and discussed the first part of the price discovery meanings as defined in the lead - lag relationship between futures prices and spot prices, which is the starting point and goal; second part discusses futures market and how to achieve price discovery function, this paper is the theoretical analysis based on the theory of transaction costs; third part from transaction costs, liquidity and regulatory efficiency analysis of factors that affect the futures market efficiency, the reason for the later analysis theory pave the way . Chapter Chinese and foreign gold on the spot market, understand the global gold on the spot market, the second is to provide a basis for the fourth part of the empirical analysis of price select chart in the text plays a big role. Gold price factors analysis is to identify the impact of the price of long-term and short-term factors. Medium-and long-term factors that affect price trends based on the supply level, short-term factors lead to short-term fluctuations of the international gold price factors, such as interest rates, exchange rates, the dollar index, commodity index, and so on. This article focuses on the introduction of short-term factors VAR model for the analysis of price dynamics relations. Chapter introduced models and methods involved. First need to stationarity of the time series with a unit root test, if it is the same integrated of order one, then by the co-integration test (including long-term equilibrium relationship analysis based on the inspection of the regression coefficients based on residual test); Granger causality test is used to test the futures and spot prices lead - lag relationship. In order to analyze the short-term dynamic relationship between the spot price of gold and futures prices in the vector regression model based on co-integration test and error correction term will reflect the long-term relationships established together with the other variable differential form error correction model, which impulse response and variance decomposition. Chapter first foreign gold futures market and domestic gold futures market price discovery mechanism for a preliminary empirical analysis. Then according to the previous price factors analysis result of the introduction of short-term impact factors, combined with short-term and long-term error correction model further analysis of the gold futures market price discovery function and price dynamics. Finally, combined with the earlier theoretical analysis of the cause of the empirical results, and put forward relevant proposals. The sixth chapter for the full text of the summary and the following conclusions: 1, as the vane of the global gold futures prices, the New York gold futures on the London spot price of gold has a guiding role to play the futures market price discovery function; contrast Shanghai, China spot price of gold on Shanghai gold futures prices to dominate the price discovery process, the futures price on the spot price the weak guiding role. 2, compared with the interest rates and the Shanghai Composite Index, the dollar index and the mutual influence of the gold market. Compared to the futures market, the role of the spot market gradually enlarged, which suggests that the domestic gold futures prices mainly affected by the impact of international gold spot price and the dollar index, the domestic financial market is relatively small. 3, the above two results show that China's gold market, there are still many problems for the fledgling Chinese gold futures for futures markets, transaction costs, market liquidity and regulatory factors of its development, but the risk is the first a reference mature market experience, local conditions, step by step to promote the construction of the futures market is the best choice for small investors, the market is unpredictable, coupled with the lack of experience, investment in gold futures, investors must be careful!

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