Research on Market Efficiency of Chinese Cotton Market

As one of the bulk crops ranking only after the three trades in China, cotton is of great strategic importance, and the cotton textile industry is the pillar industry of China´s foreign trade. This paper studies the cotton futures price index and the spot price of cotton in Zhengzhou Commodity Exchange from June 2004 to September 2010 as samples. By using ADF test, EG method, impulse response, this paper carries out the empirical research on the daily closing data of China´s cotton futures market and the spot market. The results suggest that a long-term equilibrium relationship between the spot market and the futures market exists, and that the futures market functions as a guide to the spot market. However, in short-term, the futures market is relatively weak in maintaining the equilibrium relationship. The markets react variously to all kinds of information and are responding more fiercely to the news of decreasing, and this reveals the immaturity of the markets and the existing problems. Based on the research and results above, along with the current situation of China´s cotton industry, this paper aims to put forward policy recommendations at the end.