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Abstract
Price discovery is the process whereby the futures market formulates an asking price by gathering and interpreting information on supply and demand. It is one of the most important functions of futures market, especially for agricultural commodities. Much research has been done on price discovery in a variety of markets, but most of them were restricted in one area. This study compares the effectiveness of the price discovery function for corn futures markets in the U.S. and China. Monthly spot prices data is collected, and the closing prices of the nearest contracts one-month and two-months lagged behind the spot prices are selected to construct two futures prices series. EG two-step cointegration test shows that there is a cointegration relationship between each pair of spot and futures prices. Error Correction Models are then constructed to analyze the impacts of futures prices on spot prices in the short-term when deviation from the equilibrium happens. The empirical results show that the effectiveness of price discovery in the Chinese corn futures market is close to that in the U.S. market.