Price Bubbles in Chinese Agricultural Commodity Market
This cumulative dissertation presents four contributions that attempt to shed light on the issues regarding price bubbles in Chinese agricultural commodity market. Given that the public and policymakers show their concern on the price bubbles in Chinese agricultural commodity market, chapter 2 and 3 investigate the origin of price bubbles in futures and spot markets, respectively. In particular, after accurately identifying the bubble dates in agricultural futures market and fixing the estimation bias of rare events models, our empirical results in chapter 2 indicate that bubble episodes only account for a very limited proportion of the sample period, meanwhile, China’s corn and soybeans markets respond differently to the speculative activity and external shocks from international markets. Price bubbles are more likely to be associated with strong economic activity, high interest rates and low inflation levels. Furthermore, by gauging the synchronization level of bubble occurrences between futures and spot markets in chapter 3, we find that even cointegrated futures and spot prices for agricultural commodities seldom bubble together. Further analysis through a regime-switching approach of price transmission reveals that the adjustment effect of futures prices on spot prices is the lowest during the regime where bubbles occur the most frequently for spot prices, while the spot price returns are more likely to be affected by its own lagged terms. All these results challenge the idea that bubbles are originated from over-financialization in futures markets and are then transmitted to spot markets. Therefore, we conclude that futures price bubbles are more sensitive to fundamental factors, while spot price bubbles are more likely to be affected by their own market features. Apart from empirical analyses on the origin of price bubbles, it is widely believed that bubbles could distort resource allocation and a recession usually follows the collapse of bubbles. Inspired by the findings from chapter 2 and 3, chapter 4 attempts to build a systematic theoretical framework that explains the observed economic process with bubbles. From a new perspective of firm growth, we construct a theoretical model to describe the evolvement of bubbles, including their origin, development, collapse, and their effect on the output of economy. Following our research topic, chapter 5 tends to investigate the effects of the newly established futures contract for apples in China. The results of various tests suggest that the apple futures market does not serve well for the price discovery and may reduce the spot price volatility to some extent. In order to improve the efficiency of the apple futures market, the regulators should consider effective measures to attract more commercial traders from different regions in China into the futures market.
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