Market Efficiency and Government Interventions in Prewar Japanese Rice Futures Markets

Abstract

This study analyzes how colonial rice trade in prewar Japan affected its rice market, considering several government interventions in the two rice futures exchanges in Tokyo and Osaka. We explore the interventions in the futures markets using two procedures. First, we measure the joint degree of efficiency in the markets using a time-varying vector autoregression model. Second, we examine many historical events that possibly affected the markets and focus on one event at a time. The degree varies over time within our sample period (1881-1932). The observation, together with historical analysis, leads to the following conclusions. (1) The two major markets in Tokyo and Osaka were nearly efficient. (2) Government interventions involving the delivery of imported rice from Taiwan and Korea often reduced futures market efficiency. Finally, (3) this relationship continued as long as the quality difference between imported and domestic rice existed. The government interventions that promoted domestic distributions of the colonial goods resulted in confusion in the commodity markets, and decreased efficiency of the markets in the metropole.