Price behavior in China's wheat futures market

Wheat futures prices have been playing an active role in China's agricultural price system since the contract's debut at the China Zhengzhou Commodity Exchange (CZCE). This paper analyzes CZCE wheat futures prices from 2000 to 2002 quantitatively. Results show the prices have unit root and time-varying variances. Alternative ARCH, GARCH, and ARMA models are fitted to the data resulting in the selection of AR(1), ARCH(2), and GARCH(1, 1) models. Comparisons of these three models indicate that ARCH/GARCH describes the prices better than ARMA model, and GARCH further improves upon ARCH. Out-of-sample prediction performance also confirms this result. (C) 2004 Elsevier Inc. All rights reserved.