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Abstract

The price variability of agricultural commodities reached record levels in 2008, and again more recently in 2010, raising concerns about this increased price volatility would be temporal or structural. The Chinese soybean futures market is the second largest in the world, after the CME group, in terms of trading volume. There are two soybean futures contracts in China: non-GM and GM. Due to its dominant market share of trading volume, the non-GM contract is the representative of China’s soybean markets (He and Wang, 2011). However, with the emergence of the GM soybean contract in 2004, the components of non-GM futures price volatility might have changed. This study examines the volatility determinants as well as seasonality of non-GM and GM soybean futures prices traded in Dalian Commodity Exchange from 2005 to 2014. Also, we test the comovement between these two soybeans markets. We analyze the volatility by incorporating changes in important economic variables into the Dynamic Conditional Correlation-Generalized Autoregressive Conditional Heteroskedastic (DCC-GARCH) model. This research provides statistical evidence that the futures prices of soybeans in China are being influenced by the increasing consumption of soybeans, the import quantity of soybean, the trading volume in futures market and weather. We also find spillover effect from non-GM to GM in soybean markets. A better understanding of the volatility determinants provides important additional information for various market participants, including commodity traders, hedgers, arbitrageurs, exchanges and regulatory agencies.

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