Is Futurization the Culprit for the Violent Fluctuation in China’s Apple Spot Price?

Lin Xie,Haiting Chen,Xinyan Hu,Jiahua Liao,Xuefei Yan

doi:10.3390/agriculture11040342

Abstract

China aims to utilize the futures market to stabilize agricultural product price fluctuation by quantifying the effects of risk transfer and price discovery. However, the role of futurization has been questioned and even posited as the cause of drastic fluctuations in spot market prices. This research aims to clarify the impact of futurization on the price fluctuation of agricultural products and to provide policy reference for the development of the agricultural futures market through the research. Here, we examine the spot price data for apples and use Interrupted time-series analysis (ITSA) and GARCH models to estimate the impact of apple futures on the volatility of spot prices. Our findings demonstrate that the launch of China’s apple futures did not increase the volatility of apple spot prices; that is, futurization was not the cause of skyrocketing apple spot prices. In the long term, our results suggest that futures will help reduce the volatility of apple spot prices and that the introduction of futures will ultimately reduce the price volatility of agricultural products.

Highlights

Our findings demonstrate that the launch of China’s apple futures did not increase the volatility of apple spot prices; that is, futurization was not the cause of skyrocketing apple spot prices
Risk transfer refers to futures contracts by the hedger to transfer price risk to others, while price discovery describes the use of futures prices to price spot market transactions [3]
The result shows that if we only focus on this period, the launch of apple futures did not change the level and trend of the apple’s spot price volatility

Summary

Introduction

Our findings demonstrate that the launch of China’s apple futures did not increase the volatility of apple spot prices; that is, futurization was not the cause of skyrocketing apple spot prices. Our results suggest that futures will help reduce the volatility of apple spot prices and that the introduction of futures will reduce the price volatility of agricultural products. The gradual expansion and improvement of China’s future trading varieties will help optimize the entire market’s resources and promote the futures market’s sustainable development [6]. Efficient market activity can promote the real formation of future prices, thereby realizing the function of price discovery and providing an important reference for spot pricing [7]. Agricultural products are among the earliest and most actively traded commodities in China. The goal of the agricultural futures market was to help eliminate seasonal price fluctuations, thereby minimizing price volatility [9,10,11]. In agricultural product prices, which thereby provides agricultural product producers, operators, and agricultural product demanders with tools to discover prices, avoid risks, and reduce spot market volatility [12]

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Methods

Findings

Discussion

Conclusion