Market Integration and Arbitrage Efficiency in International Agricultural Markets: A New Regime-Switching Approach

32 Pages Posted: 15 Oct 2009

See all articles by Shengfei Han

Shengfei Han

South China University of Technology

Guizhen Cao

South China University of Technology

Yumin Zhai

affiliation not provided to SSRN

Zhibin Wen

affiliation not provided to SSRN

Date Written: September 27, 2009

Abstract

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

Han, Shengfei and Cao, Guizhen and Zhai, Yumin and Wen, Zhibin, Market Integration and Arbitrage Efficiency in International Agricultural Markets: A New Regime-Switching Approach (September 27, 2009). Available at SSRN: https://ssrn.com/abstract=1489176 or http://dx.doi.org/10.2139/ssrn.1489176

Shengfei Han (Contact Author)

South China University of Technology ( email )

Wushan
Guangzhou, Guangdong 510640
China

Guizhen Cao

South China University of Technology ( email )

Wushan
Guangzhou, AR Guangdong 510640
China

Yumin Zhai

affiliation not provided to SSRN ( email )

Zhibin Wen

affiliation not provided to SSRN ( email )

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