STRUCTURAL BREAKS AND THE RELATIONSHIP BETWEEN SOYBEAN AND CORN FUTURES PRICES ON THE DALIAN COMMODITY EXCHANGE OF CHINA

摘要

Co-movement between futures prices can arise when commodities are substitutes. Using Johansen's co-integration procedure, we fail to find a significant long-run link between soybean and corn prices on the Dalian Commodity Exchange of China. This relationship is re-examined using Johansen's co-integration procedure that permits structural breaks. Results show evidence of co-integration and hence price discovery. There is a significant break in July 2007 by reason of rare drought in China's main soybean producing areas. The soybean-corn futures market is perfectly integrated, and the soybean price Granger-causes the corn price. Modeling structural breaks in price relationships appears important.