Cross-Market Soybean Futures Price Discovery: Does the Dalian Commodity Exchange Affect the Chicago Board of Trade?

Forthcoming in Quantitative Finance

34 Pages Posted: 5 Feb 2013

See all articles by Liyan Han

Liyan Han

Beihang University (BUAA) - School of Economic and Management Science

Rong Liang

Renmin University of China

Ke Tang

Institute of Economics, School of Social Sciences, Tsinghua University

Date Written: February 4, 2013

Abstract

In this paper, we examine the role that the Dalian Commodity Exchange (DCE) plays in the global price discovery of soybean futures. We employ Structural Vector Autoregressive (SVAR) and Vector Error Correction (VEC) models on the returns of the DCE and the Chicago Board of Trade (CBOT) soybean futures during trading and non-trading hours, and the result suggests that information transfers between DCE and CBOT in both directions, in particular, that the DCE soybean futures prices influence price discovery in CBOT. Furthermore, the impulse response analysis and forecasted error variance decomposition show that the information transfer from DCE to CBOT is at a similar magnitude as that from CBOT to DCE. This shows that the DCE plays a prominent role in the global soybean futures price discovery. This conclusion differs from much of the literature, which mainly shows that the DCE is a satellite market and is dominated by the CBOT.

Keywords: Cross-market Price Discovery, Soybeans Futures, Danlian Commodity Exchange, Chicago Board of Trade

JEL Classification: G13

Suggested Citation

Han, Liyan and Liang, Rong and Tang, Ke, Cross-Market Soybean Futures Price Discovery: Does the Dalian Commodity Exchange Affect the Chicago Board of Trade? (February 4, 2013). Forthcoming in Quantitative Finance, Available at SSRN: https://ssrn.com/abstract=2211880

Liyan Han

Beihang University (BUAA) - School of Economic and Management Science ( email )

37 Xue Yuan Road
Beijing 100083
China

Rong Liang

Renmin University of China ( email )

Room B906
Xianjin Building
Beijing, Beijing 100872
China

Ke Tang (Contact Author)

Institute of Economics, School of Social Sciences, Tsinghua University ( email )

No.1 Tsinghua Garden
Beijing, 100084
China

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