We begin with a descriptive analysis of the relationship implied by Equation (i) using data on futures and cash prices from 2003 to 20i0.
As indicated earlier, if futures prices and cash prices converge, then the estimated values for (30 and b1 should be zero and unity.
Our results showed that the cash prices and the lagged futures prices one week and one to six months prior contained unit roots.
Our results suggest that futures prices taken at one week, or one to six months prior to cash prices are cointegrated with the upcoming ZGWM average cash prices at a statistically significantly level ([alpha] = 0.
Having established that the DCE futures prices are cointegrated with ZGWM local cash prices, we turned to test the long-run coefficients, [beta]', to examine whether each futures price series could form a long-run relationship with the later revealed cash prices (Equation (5)).
Both independent test and joint tests showed that the null hypothesis could not be rejected at a 5 per cent level for the one-week lag estimation, indicating that there is no bias between futures prices and cash prices in the short term.
Using sample data from 2003 to 2010, we detected that futures prices taken one to six months prior to cash prices responded rapidly to exogenous price shocks with a magnitude of adjustment of more than 49 per cent of the previous month's equilibrium error.
57) Our results revealed that the efficiency of soybean trading has improved in recent years and that the futures prices provide useful signals to the formation of forthcoming cash prices.
China's agricultural extension programmes have provided extensive education to help growers understand the mechanics of futures markets and how futures prices could be linked with recent cash prices.
Kao, "An Analysis of the Role of Futures Prices, Cash Prices, and Government Programs in Acreage Response", Western Journal of Agricultural Economics 8 (1983): 27-33.
An understanding of the implications of futures and cash price integration enables policy-makers to more effectively monitor speculation and hedging behaviour in order to enhance market liquidity and efficiency, guide market participation, implement better agricultural policies and boost infrastructure investments.
Empirical evidence remains unclear about the relationship between the long and short-run future cash price movement.