Are the Tokyo Grain Exchange non-genetically modified organism (non-GMO) and conventional soybean futures markets integrated?

Purpose – The purpose of this paper is to test the market linkage and the strength of the linkage between the identity-preserved (IP) non-genetically modified organism (non-GMO) and non-IP conventional soybean futures markets at the Tokyo Grain Exchange (TGE) when effects from structural breaks are considered. Design/methodology/approach – The Johansen method is used for testing the market linkage and the law of one price (LOP) test is performed to find out the strength of the linkage. The Bai-Perron test is conducted on the price series to identify the structural breaks. After the breaks are statistically determined by the Bai-Perron test the Johansen tests are conducted for every break period. Findings – Market linkage exists between the non-GMO and conventional soybean futures markets but the LOP test suggests that the two markets are not fully linked and the relative price of the two soybeans is not constant. The breaks identified in the study affected the market linkage; the price relationship is lost during the break periods. Practical implications – The results of this study help explain the value of other new markets where the product traded is a close substitute for an existing market. Originality/value – This is the first study to apply the market integration theory to an IP market. The TGE non-GMO soybean contract is the first market price series with sufficient information to appropriately model a price integration linkage for an IP market. The result is valuable in the future when more markets for IP commodities are developed.