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Measuring and benchmarking time-varying market efficiency

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  • Mu, Yali

Abstract

This paper employs an analytical framework combining a time-varying Vector Error Correction Model (VECM) with panel stochastic frontier models to assess and benchmark the efficiency of pork markets across 30 provincial capitals in China from 2000 to 2017. The time-varying VECM reveals that between 20% and 40% of any deviation from long-run equilibrium in market pairs is corrected within one month, highlighting the responsiveness and adjustment processes within the pork markets. Concurrently, panel stochastic frontier models estimate the efficiency of market integration across different provincial capitals, capturing spatial and temporal variations in market efficiency. Key findings indicate significant spatial and temporal variations in the speed at which markets correct deviations from equilibrium. The efficiency frontiers decline with increasing distances between markets, underscoring the influence of spatial factors such as logistics and transportation on price transmission efficiency across regions. Over the studied period, the estimated frontiers for market integration exhibit a downward shift, suggesting challenges in overall market efficiency regarding price transmission. The results also reveal that there is a fixed level of inefficiency that cannot be explained by the covariates we included in the models.

Suggested Citation

  • Mu, Yali, 2024. "Measuring and benchmarking time-varying market efficiency," IAAE 2024 Conference, August 2-7, 2024, New Delhi, India 344294, International Association of Agricultural Economists (IAAE).
    • Handle: RePEc:ags:iaae24:344294
    DOI: 10.22004/ag.econ.344294
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