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Who has the final say?

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  • Ling‐Yun He
  • Wen‐Si Xie

Abstract

Purpose - There is a distinct separation of price discovery from pricing power in China's sugar spot and futures markets. The purpose of this paper is to identify the reasons and provide plausible explanations for this stylized phenomenon. Therefore, the research may deepen the understandings of the operational mechanisms and internal efficiency of China's sugar spot and futures markets. Design/methodology/approach - The authors analyze the historical spot and futures price time series from China's sugar spot market and China's Zhengzhou Commodity Exchange (CZCE) within a co‐integration framework. Findings - It is found that China's sugar spot market has the pricing power, even though the futures market leads the spot market in price discovery. The phenomenon of observed separation of price discovery in spot market from pricing power in futures market may be caused by: irrational speculation in CZCE sugar futures market; oligopoly and local government politics; or the operational efficiency of the wholesale spot market, especially for its comparative advantages of information accessibility in the sugar producing areas. The results are compared with other empirical findings in many other commodities markets to obtain deeper understandings. Originality/value - The paper uncovers and provides the earliest econometric evidence of the observed stylized phenomenon and also provides plausible explanations for this phenomenon.

Suggested Citation

  • Ling‐Yun He & Wen‐Si Xie, 2012. "Who has the final say?," China Agricultural Economic Review, Emerald Group Publishing Limited, vol. 4(3), pages 379-390, August.
    • Handle: RePEc:eme:caerpp:v:4:y:2012:i:3:p:379-390
    DOI: 10.1108/17561371211263383
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    3. Cao, Guangxi & Xu, Wei, 2016. "Nonlinear structure analysis of carbon and energy markets with MFDCCA based on maximum overlap wavelet transform," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 444(C), pages 505-523.
    4. Yang, Linghubo & Zhang, Dongxiang, 2013. "Can futures price be a powerful predictor? Frequency domain analysis on Chinese commodity market," Economic Modelling, Elsevier, vol. 35(C), pages 264-271.
    5. Li, Miao & Xiong, Tao, 2021. "Dynamic price discovery in Chinese agricultural futures markets," Journal of Asian Economics, Elsevier, vol. 76(C).
    6. Derick D. Quintino & Sergio A. David & Carlos E. de F. Vian, 2017. "Analysis of the Relationship between Ethanol Spot and Futures Prices in Brazil," IJFS, MDPI, vol. 5(2), pages 1-10, April.
    7. Ling-Yun He & Sheng Yang & Wen-Si Xie & Zhi-Hong Han, 2014. "Contemporaneous and Asymmetric Properties in the Price-Volume Relationships in China's Agricultural Futures Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(1S), pages 148-166, January.

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