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Are futures markets functioning well for agricultural perishables? Evidence from China's apple futures market

Author

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  • Qianqian Mao

    (School of Economics, Zhejiang University of Technology, Hanghzou, China
    Institute for Industrial System Modernization, Zhejiang University of Technology, Hangzhou, China
    Department of Agricultural Economics, University of Kiel, Kiel, Germany)

  • Jens-Peter Loy

    (Department of Agricultural Economics, University of Kiel, Kiel, Germany)

  • Thomas Glauben

    (Leibniz Institute of Agricultural Development in Transition Economies (IAMO), Halle, Germany)

  • Yanjun Ren

    (College of Economics and Management, Northwest A & F University, Yangling, China
    Leibniz Institute of Agricultural Development in Transition Economies (IAMO), Halle, Germany)

Abstract

Emerging economies often establish commodity futures markets to discover price signals, manage price risks and improve market integration, but establishing a futures market may not be feasible for agricultural perishables. In this study, we evaluated the function of the world's first fresh fruit futures contract for apples. Combining partial cointegration with state-space modelling, we derived time-varying price discovery metrics for the apple futures market. Our findings revealed a limited and time-varying dominance of price discovery by the futures market, while a substantial share of price discovery occurred in the spot market. Moreover, poor convergence of disaggregated spot prices to the futures price suggests that commercial traders in the apple supply chain tended to focus more on the spot market than on the futures market. Thus, emerging economies should be cautious about the new establishment of futures markets for agricultural perishables. Future research using more specific data on the spot market may provide a better insight on the limited function of the futures market.

Suggested Citation

  • Qianqian Mao & Jens-Peter Loy & Thomas Glauben & Yanjun Ren, 2023. "Are futures markets functioning well for agricultural perishables? Evidence from China's apple futures market," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 69(12), pages 471-484.
    • Handle: RePEc:caa:jnlage:v:69:y:2023:i:12:id:278-2023-agricecon
    DOI: 10.17221/278/2023-AGRICECON
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