Abstract
ABSTRACT We use a Supremum Augmented Dickey–Fuller test to detect price bubbles in the world’s most important sugar futures markets (ZCE, NYBOT, and LIFFE) from 2006 to 2017. Results show 19 bubbles with characteristics similar in quantity, duration, and price variation. We explore whether sugar futures prices in ZCE, NYBOT, and LIFFE are integrative in a full sample with an improved hybrid method of directed acyclic graphs and structural vector autoregression. Based on the bubble test, we examine market integration in the sugar futures markets during explosive and unexplosive episodes. We find the impact of price bubbles on market integration and explore the cause of price bubbles in a macro-economic environment. Empirical results show futures markets are more integrative when price bubbles occur. We find sugar futures price bubbles reflect supply and demand imbalance, market participants are extremely sensitive, and market information exchanges frequently during the bubble period.
Highlights
China is the world’s largest sugar importer with annual imports of more than two million tons
We explore whether sugar future prices in Zhengzhou Commodity Exchange (ZCE), New York Board of Trade (NYBOT), and London International Financial Futures Exchange (LIFFE) are integrative in the full sample using an improved hybrid method of directed acyclic graphs (DAG) and structural vector autoregression (SVAR)
By comparing the results of market integration in different periods, we find the impact of price bubbles on market integration and explore the causes of price bubbles based on a macro-economic environment
Summary
China is the world’s largest sugar importer with annual imports of more than two million tons. Using 2010 as a cut-off point, before its import volume had increased significantly, China’s import dependence was less than 10%. By 2014, China’s sugar import dependence was as high as 26% to 27%.1. As for long-term price trends, China’s sugar price is not out of line with the overall international market trend due to a low-tariff free-trade policy and China’s limited sugar planting area. We cannot ignore the connection between China and the international market. International sugar spot prices have been exceptionally volatile over the past several years, reaching a high of $ 0.3257/lb. On 3 February 2011 (daily spot price in nominal dollars) and a low of $ 0.1119/lb. Sugar futures provide farmers and traders with an important defense or “hedge” against
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