Abstract: Price discovery is the timely and efficient incorporation of new information into transaction prices. This paper investigates the price discovery function of futures market for three non-precious metals-rebar, wire, and hot roll bar on Shanghai Financial Exchange (SHFE) using VAR, Granger causality test, cointegration test and VECM. The study uses daily data on spot prices and dominant futures prices of rebar and wire over the period from March 2009 to March 2017, and hot roll bar over the period from March 2013 to March 2017 which are obtained from SHFE website. The study analyzes the differences in the price discovery function of different markets in the theoretical level. The study concludes that all the series of spot and futures prices are closely correlated, synchronized, and codependent in the long-run. The results of VAR model show that rebar futures returns Granger cause rebar spot returns, and there is a bi-directional causality in wire and hot roll bar spot and futures market. The results of VECM and Information Shares model indicate the rebar and hot roll bar futures market is found to be sounder in terms of discounting new information than their spot market, but wire futures market displays weaker price discovery than spot market. Our results of the role of rebar and wire futures market in the price discovery process are robust to different lengths of transaction windows and futures contracts of different types. However, hot roll bar futures market exhibit different price discovery function according to the research method and contracts whichare used. The price discovery of wire futures market has diminished during the period of official launch of hot roll bar futures. If we ignore the role of steel B2B electronic market in the price discovery process, we will overestimate the degree of hot roll bar futures market price discovery function.

Key words: short-term price information transmission, price discovery, multi VECM-information shares model, steel trading markets