Analysis of the Dynamic Relationship of the Futures Prices of Rubber in Shanghai and Tokyo

Analysis of the Dynamic Relationship of the Futures Prices of Rubber in Shanghai and Tokyo

The current natural rubber futures market is mainly selling in Shanghai Futures Exchange (SHFE) and Tokyo Commodity Exchange (TOCOM). TOCOM dominated rubber prices in the past decades. However, the trading volume of SHFE’s rubber futures exceeded that of TOCOM after nearly 10 years of market development. The correlation between rubber futures price in SHFE and TOCOM were analyzed to examine their competitiveness against global rubber futures market. A number of guidelines were offered to investors according to price correlation. Many scholars use the Grainger causality to test price correlations in futures markets. We collected the daily continuous rubber futures prices in SHFE and TOCOM from 2012 to 2016 based on previous studies. The Grainger causality test provides the following results: TOCOM is the Grainger causality ofSHFE is received, and SHFE is the Grainger causality of TOCOM is refused. Thus, a one-way causal relationship exists between the two rubber futures markets. This analysis indicates that the rubber prices of SHFE can lead that of TOCOM, which means that SHFE’s rubber futures market will become more competitive in the global rubber futures market. The following suggestions should be considered to further improve the natural rubber futures market of SHFE: China should strengthen supervision of the futures market; the Futures Law should be improved and passed as soon as possible; investors should pay more attention to the trends of rubber prices in SHFE and strengthen analysis of the fundamentals of the rubber industry in China.