A Research of the Relationship between Cotton Prices in Futures Market and in Cash Market

The price discovery function between futures market and cash market is a very important problem that management and investors are concerned with.This paper empirically researches the relationship between cotton prices in futures market and cash market with the information share model,impulse response function and variance decomposition and gives a quantitive portray of the function of futures market and cash market in price discovery.The result shows that there is a bi-directional leading relationship between cotton prices in futures market and cash market and there is a long-term equilibrium relationship between them;Both futures and cash markets play important roles in price discovery and the day futures market is in a dominant position.