Price Discovery in the Chinese Gold Market

Abstract

This study conducts price discovery analysis in the Chinese gold market. Our result indicates that the price discovery in Chinese gold market occurs predominantly in the futures market. The result is robust to the different measures of price discovery, namely information share, component share, and information leadership share. Partitioning the daily trades into three trading sessions, we find that the dominance of the futures market occurs in all trading sessions. We further investigate the sequential price discovery within the spot market or futures market. We find that the price discovery of gold spot market and gold futures market occur in the night trading session.JEL: G10, G14

Price discovery in bitcoin spot or futures?

“…It is thus interesting how price discovery evolves given that there is no commonly accepted pricing model of bitcoin. This feature is shared with gold where the empirical evidence shows that the price is discovered in the futures market (e.g., Hauptfleisch, Putninš, & Lucey, ; Jin, Li, Wang, & Yang, ).…”

Night trading and market quality: Evidence from Chinese and US precious metal futures markets

“…To investigate the question of optimal trading hours for newer entrant markets, we examine the introduction of night trading by the Shanghai Futures Exchange (SHFE) for gold and silver futures on July 5, 2013. Before this period, trading took place during daylight hours in Shanghai between 9:00 a.m.–11:30 a.m. and 1:30 p.m.–3:00 p.m. From July 2013, an additional session was added which runs from 9:00 p.m. to 2:30 a.m. the following day (see Jin, Li, Wang, & Yang, 2018), more than doubling the amount of time available for trading during a ‘trading’ day. The SHFE view was, “The purpose of night trading is to help prices [on the Shanghai exchange] better connect with global prices, and to help achieve our goal of internationalizing our contracts” (Li, 2013).…”

“…Although the SHFE is the second largest gold futures exchange worldwide by volume traded (Jin et al, 2018; Reuters, 2017), the Commodity Exchange (COMEX) in New York, where gold futures first started trading in 1974, is larger. Indeed, recent work suggests that the COMEX gold futures play the leading role globally in price setting and discovery (Fung, Tse, Yau, & Zhao, 2013; Hauptfleisch, Putnins, & Lucey, 2016; X. Xu & Fung, 2005).…”

“…Third, recent literature suggests that price discovery is more likely to occur in the SHFE gold futures market relative to the Shanghai Gold Exchange (SGE) physical market and that, within both markets, price discovery is more prevalent during night trading sessions (Jin et al, 2018). Here we extend such work by examining the price discovery function of the SHFE gold and silver futures relative to the preeminent US futures exchange.…”

The impact of the US stock market opening on price discovery of government bond futures

“…The basic logic of this framework is similar to that of Hasbrouck (), where information flow is measured by the variation in the efficient price of an asset. However, unlike Wang and Yang () and Jin, Li, Wang, and Yang (), we do not use an integrated variance with a reduced noise component to compute the IS . Instead, we extract the efficient price directly from transaction prices using a state‐space model for intraday price dynamics (Brogaard, Hendershott, & Riordan, ; Hendershott & Menkveld, ).…”