The ‘Necessary Evil’ in Chinese Commodity Markets

Fan, John Hua; Mo, Di; Zhang, Tingxi

doi:10.2139/ssrn.3459898

Cited by 1 publication

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“…Recent studies have examined the broad market performance (Fung, Tse, Yau, & Zhao, 2013;Tu, Song, & Zhang, 2013), trend-following strategies (Li, Zhang, & Zhou, 2017), pricing implications (He, Jiang, & Molyboga, 2019), volatility (Jiang, Ahmed, & Liu, 2017;Tian, Yang, & Chen, 2017), diversification potential (Hammoudeh, Nguyen, Reboredo, & Wen, 2014;Liu, Tse, & Zhang, 2018), the impact of speculation (Fan, Mo, & Zhang, 2019;Wellenreuther & Voelzke, 2019), and high frequency trading (Zhao & Wan, 2018). For example, Tu et al (2013) conclude that the correlation between the Chinese and the US markets has increased during the period 2000.…”

Section: A Brief Walk Down the Great Wall Of Commoditymentioning

confidence: 99%

The untold story of commodity futures in China

Fan

Zhang

2019

Journal of Futures Markets

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We investigate the behavior of commodity futures risk premia in China. In the presence of retail‐dominance and barriers‐to‐entry, the term structure and momentum premia remain persistent, whereas hedging pressure, skewness, volatility, and liquidity premia are distorted by time‐varying margins and strict position limits. Furthermore, open interest, currency, and inflation premia are sensitive to institutional settings. The observed premia cannot be attributed to common risks, sentiment, transactions costs, or data‐snooping, but are related to liquidity, anchoring, and regulation‐induced limits‐to‐arbitrage. We highlight the distinctive features of Chinese futures markets and assess the challenges posed to theories of commodity risk premia.

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