Study on the Price Discovery Function of China Steel Futures

Based on Co-integration test, Granger causality test, GS model and VEC model, this paper did the empirical analysis for the price discovery function of steel rebar futures and steel wire rod futures at SHFE. The major findings of this study are: (1) The futures´ prices and spots´ prices for both steel rebar and steel wire rod have the long-term co-integration relationship. There is two-way leading function between futures and spots. (2) With a high trading volume, The Steel Rebar futures play major role in price discovery and can be used for hedging risk. (3)With a low trading volume, the steel wire rod futures have less effect than spots in price discovery.