Empirical Study on Hedge Ratio and Hedge Effectiveness of Soybean Futures in China

In order to examine the risk hedging function of Chinese futures market at different developmental periods, this paper chooses soybean futures as the proxy and divides the series of its spot and futures prices from 1996 to 2005 into three stages based on the principle of ordered sample clustering. Through ADF test, structure break test and cointegration test, ECM model is then successfully established to compute and compare hedge ratios and hedge effectiveness of soybean futures at different periods. In the end, we get the conclusion that risk hedging function of soybean futures was remarkably reinforced after 1998 and along with the time passing by, reached a higher level after 2002. This change further reflects that the political regulations and innovations towards futures market between 1998 and 2002 have obtained fairly good effect.