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Cotton market integration and the impact of China's new exchange rate regime
Author(s) -
Ge Yuanlong,
Wang Holly H.,
Ahn Sung K.
Publication year - 2010
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/j.1574-0862.2010.00456.x
Subject(s) - cointegration , economics , futures contract , exchange rate , china , market integration , financial economics , liberalization , forward market , futures market , international economics , monetary economics , macroeconomics , econometrics , market economy , political science , law
This article studies the integration of China's cotton market with the international market, especially the U.S. market. Investigating the futures prices from the Intercontinental Exchange (ICE) in the U.S. and the Zhengzhou Commodity Exchange (ZCE) in China with several time series models, we find that a long‐run cointegration relationship exists between these two series. The two markets share price transmissions, and based on results from an Autoregressive Conditional Heteroskedasticity (ARCH) model, we find their price volatilities are similar. We argue that China's recent exchange rate reform and its gradual liberalization in bilateral cotton trade since it joined World Trade Organization have had important impacts on these futures markets. Based on these findings, several important economic and policy implications are derived.