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Do Bubbles Alter Contributions to Price Discovery? Evidence from the Chinese Soybean Futures and Spot Markets

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  • Miao Li
  • Tao Xiong

Abstract

The purpose of this study is to investigate whether bubbles have significantly influenced the performance of price discovery in Chinese soybean futures markets. To evaluate the performance of price discovery, we employ forecast error variance decomposition based on structural vector autoregression and directed acyclic graphs, using daily data from six price series of futures contracts expiring at different months and one spot soybean price for the past 13 years. Then, the full-period data are divided into bubble and non-bubble periods via the supremum augmented Dickey–Fuller test. The methods utilized on the full sample for price discovery are conducted again on two subperiods. Our empirical results show that price discovery in the Chinese soybean futures market performs much better in bubble periods and worse in non-bubble period compared to the full period, indicating that bubbles have significantly influenced the performance of price discovery in Chinese soybean futures markets.

Suggested Citation

  • Miao Li & Tao Xiong, 2019. "Do Bubbles Alter Contributions to Price Discovery? Evidence from the Chinese Soybean Futures and Spot Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(15), pages 3417-3432, December.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:15:p:3417-3432
    DOI: 10.1080/1540496X.2019.1608178
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    Cited by:

    1. Pradita Nareswari & Sigit S. Wibowo, 2020. "Global and Local Commodity Prices: A Further Look at the Indonesian Agricultural Commodities," Capital Markets Review, Malaysian Finance Association, vol. 28(1), pages 65-76.
    2. Zhuo Chen & Bo Yan & Hanwen Kang, 2023. "Price bubbles of agricultural commodities: evidence from China’s futures market," Empirical Economics, Springer, vol. 64(1), pages 195-222, January.
    3. Ersan, Oguz & Simsir, Serif Aziz & Simsek, Koray D. & Hasan, Afan, 2021. "The speed of stock price adjustment to corporate announcements: Insights from Turkey," Emerging Markets Review, Elsevier, vol. 47(C).
    4. Zheng, Xuyun & Pan, Zheng, 2022. "Responding to import surges: Price transmission from international to local soybean markets," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 584-597.

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