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Who has the final say?: Market power versus price discovery in China's sugar spot and futures markets

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  • Ling-Yun He
  • Wen-Si Xie

Abstract

Purpose - There is a distinct separation of price discovery from pricing power in China's sugar spot and futures markets. The purpose of this paper is to identify the reasons and provide plausible explanations for this stylized phenomenon. Therefore, the research may deepen the understandings of the operational mechanisms and internal efficiency of China's sugar spot and futures markets. Design/methodology/approach - The authors analyze the historical spot and futures price time series from China's sugar spot market and China's Zhengzhou Commodity Exchange (CZCE) within a co-integration framework. Findings - It is found that China's sugar spot market has the pricing power, even though the futures market leads the spot market in price discovery. The phenomenon of observed separation of price discovery in spot market from pricing power in futures market may be caused by: irrational speculation in CZCE sugar futures market; oligopoly and local government politics; or the operational efficiency of the wholesale spot market, especially for its comparative advantages of information accessibility in the sugar producing areas. The results are compared with other empirical findings in many other commodities markets to obtain deeper understandings. Originality/value - The paper uncovers and provides the earliest econometric evidence of the observed stylized phenomenon and also provides plausible explanations for this phenomenon.

Suggested Citation

  • Ling-Yun He & Wen-Si Xie, 2012. "Who has the final say?: Market power versus price discovery in China's sugar spot and futures markets," China Agricultural Economic Review, Emerald Group Publishing, vol. 4(3), pages 379-390, August.
  • Handle: RePEc:eme:caerpp:v:4:y:2012:i:3:p:379-390
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    References listed on IDEAS

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    8. Baldi, Lucia & Peri, Massimo & Vandone, Daniela, 2011. "Spot and Futures Prices of Agricultural Commodities: Fundamentals and Speculation," 2011 International European Forum, February 14-18, 2011, Innsbruck-Igls, Austria 122002, International European Forum on Innovation and System Dynamics in Food Networks.
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    Citations

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    Cited by:

    1. Yang, Linghubo & Zhang, Dongxiang, 2013. "Can futures price be a powerful predictor? Frequency domain analysis on Chinese commodity market," Economic Modelling, Elsevier, vol. 35(C), pages 264-271.
    2. repec:gam:jijfss:v:5:y:2017:i:2:p:11-:d:94785 is not listed on IDEAS
    3. Ling-Yun He & Sheng Yang & Wen-Si Xie & Zhi-Hong Han, 2014. "Contemporaneous and Asymmetric Properties in the Price-Volume Relationships in China's Agricultural Futures Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(S1), pages 148-166.
    4. Cao, Guangxi & Xu, Wei, 2016. "Nonlinear structure analysis of carbon and energy markets with MFDCCA based on maximum overlap wavelet transform," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 444(C), pages 505-523.
    5. Zhi-Hong Han & Sheng Yang & Mu-Ling Chen & Ling-Yun He, 2015. "Mean spillover effect between crude oil and gasoline markets: an empirical result," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 38(1/2/3), pages 49-68.

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