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The Trilogy of the Chinese Apple Futures Market: Price Discovery, Risk-Hedging and Cointegration

Author

Listed:
  • Xiaokang Hou

    (Department of Economics and Management, Northwest A&F University, Xianyang 710021, China)

  • Shah Fahad

    (School of Management, Hainan University, Haikou 570228, China
    School of Economics and Management, Leshan Normal University, Leshan 641000, China)

  • Peipei Zhao

    (Department of Economics and Management, Northwest A&F University, Xianyang 710021, China)

  • Beibei Yan

    (Department of Economics and Management, Northwest A&F University, Xianyang 710021, China)

  • Tianjun Liu

    (Department of Economics and Management, Northwest A&F University, Xianyang 710021, China)

Abstract

The agricultural futures market plays an extremely important role in price discovery, hedging risks, integrating agricultural markets and promoting agricultural economic growth. China is the largest apple producer and consumer in the world. In 2017, Chinese apple futures were listed on the Zhengzhou Commodity Exchange (CZCE) as the first fruit futures contract globally. This paper aims to study the efficiency of the apple futures market by using the Wild Bootstrapping Variance Ratio model to estimate the price discovery function, the ARIMA-GARCH model to estimate the risk-hedging function, and the ARDL-ECM model to estimate the cointegration relationship of the futures and spot market. Experimental results firstly demonstrate that the apple futures market conforms to the weak-form efficiency, which indicates that it is efficient in price discovery. Secondly, the apple futures market is not of semi-strong efficiency because it generated abnormal profit margins amid China–US trade friction, climate disaster, and COVID-19; in terms of the degree of impact, the COVID-19 pandemic had the greatest impact, followed by the rainstorm disaster and trade friction. Thirdly, the results of this study indicate that the cointegration relationships exist between the futures market and the spot markets of the main producing areas. This paper is not only conducive to sustainable development of the global fresh or fruit futures market, but also has potential and practical importance for China in developing the agricultural futures market, strengthening market risk management and promoting market circulation.

Suggested Citation

  • Xiaokang Hou & Shah Fahad & Peipei Zhao & Beibei Yan & Tianjun Liu, 2022. "The Trilogy of the Chinese Apple Futures Market: Price Discovery, Risk-Hedging and Cointegration," Sustainability, MDPI, vol. 14(19), pages 1-16, October.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:19:p:12864-:d:936935
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