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Are the Tokyo Grain Exchange non-genetically modified organism (non-GMO) and conventional soybean futures markets integrated?

Author Info

Listed author(s):
  • Kentaka Aruga

Abstract

Purpose - The purpose of this paper is to test the market linkage and the strength of the linkage between the identity-preserved (IP) non-genetically modified organism (non-GMO) and non-IP conventional soybean futures markets at the Tokyo Grain Exchange (TGE) when effects from structural breaks are considered. Design/methodology/approach - The Johansen method is used for testing the market linkage and the law of one price (LOP) test is performed to find out the strength of the linkage. The Bai-Perron test is conducted on the price series to identify the structural breaks. After the breaks are statistically determined by the Bai-Perron test the Johansen tests are conducted for every break period. Findings - Market linkage exists between the non-GMO and conventional soybean futures markets but the LOP test suggests that the two markets are not fully linked and the relative price of the two soybeans is not constant. The breaks identified in the study affected the market linkage; the price relationship is lost during the break periods. Practical implications - The results of this study help explain the value of other new markets where the product traded is a close substitute for an existing market. Originality/value - This is the first study to apply the market integration theory to an IP market. The TGE non-GMO soybean contract is the first market price series with sufficient information to appropriately model a price integration linkage for an IP market. The result is valuable in the future when more markets for IP commodities are developed.

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Article provided by Emerald Group Publishing in its journal Agricultural Finance Review.

Volume (Year): 71 (2011)
Issue (Month): 1 (May)
Pages: 84-97

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Handle: RePEc:eme:afrpps:v:71:y:2011:i:1:p:84-97
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Keywords: Japan; Agriculture; Food crops; Genetic modification; Futures markets;

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  1. Xu, Xiaoqing Eleanor & Fung, Hung-Gay, 2005. "Cross-market linkages between U.S. and Japanese precious metals futures trading," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(2), pages 107-124, April.
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  7. Frank Asche & Atle G. Guttormsen & Tom Sebulonsen & Elin H. Sissener, 2005. "Competition between farmed and wild salmon: the Japanese salmon market," Agricultural Economics, International Association of Agricultural Economists, vol. 33(3), pages 333-340, November.
  8. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
  9. Hansen, Bruce E., 2000. "Testing for structural change in conditional models," Journal of Econometrics, Elsevier, vol. 97(1), pages 93-115, July.
  10. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
  11. David E. Rapach & Mark E. Wohar, 2006. "Structural Breaks and Predictive Regression Models of Aggregate U.S. Stock Returns," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(2), pages 238-274.
  12. Chen, Gong-meng & Firth, Michael & Meng Rui, Oliver, 2002. "Stock market linkages: Evidence from Latin America," Journal of Banking & Finance, Elsevier, vol. 26(6), pages 1113-1141, June.
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Cited by:

  1. Aruga Kentaka, 2011. "Market Efficiency in the Non-Genetically Modified Soybean Futures Market," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 9(1), pages 1-13, December.
  2. Aruga, Kentaka & Managi, Shunsuke, 2011. "Testing the international linkage in the platinum-group metal futures markets," Resources Policy, Elsevier, vol. 36(4), pages 339-345.
  3. Aruga, Kentaka, 2011. "非遺伝子組換え大豆とエネルギーの価格関係について
    [Relationships among the Non-Genetically Modified Soybean and Energy Prices]    ," MPRA Paper 38186, University Library of Munich, Germany, revised 20 Aug 2011.

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