Correlation between agricultural markets in dynamic perspective—Evidence from China and the US futures markets

• We study the correlation between China and US agricultural futures markets in both returns and volatilities.
• We use thermal optimal path (TOP) method to examine the lead–lag relationship.
• We analyze the change of lead–lag order based on three partitioned stages.
• We contrast the lead–lag function of three different agricultural commodities varieties.

Emerging as the earliest futures markets, agricultural futures markets play an important role in risk aversion and price discovery. With the integration of global economy, the linkage between domestic and international futures markets becomes closer than ever. By using the thermal optimal path (TOP) method, this paper selects soybean, corn and wheat as the representatives to study the dynamic lead–lag relationship between the Chinese and American markets in both returns and volatility. The results indicate that: (1) For the futures return, different kinds of agricultural futures lead–lag relationship between China and the US varied before 2014 both in direction and order in different time periods. However, China leads the US for all the three kinds we study after 2014. (2) Agricultural commodities subject to less import restrictions and government regulations in China such as soybean are more susceptible to the fluctuations from the international markets. On the other hand, lower foreign trade openness and more government regulation species such as wheat are less affected by fluctuations from outside. (3) The volatility transmission from the US to China wheat futures market takes longer time than soybean, which suggests that China’s soybean futures market is more closely linked to the international agricultural futures market than wheat.