Market Integration and Arbitrage Efficiency in International Agricultural Markets: A New Regime-Switching Approach
32 Pages Posted: 15 Oct 2009
Date Written: September 27, 2009
A market regime-switching model is developed that has rate of trade identified using a rent-weighted approach. The model also indirectly accounts for the impacts of other competitors through separate specifications of variation parameters across alternate seasons. Commodity futures prices are utilized as the expected revenue indicator in a present value framework. An application of the methods to US-China soybean trade demonstrates that knowing how trade change allows more precise understanding of market conditions. Nontrivial deviations from efficient arbitrage are detected in US-China soybean trade, although the two markets are integrated most of the time. The prices link more closely after China joined WTO. A significantly higher rent variation has also been found during the South American harvest season.
Keywords: China, Futures, Market Integration, Regime Switching, Soybean Trade, WTO effects
JEL Classification: F15, C20, Q11
Suggested Citation: Suggested Citation