Speculative Activity and Returns Volatility of Chinese Major Agricultural Commodity Futures

46 Pages Posted: 19 Jan 2018

See all articles by Martin T. Bohl

Martin T. Bohl

University of Muenster

Pierre L. Siklos

Wilfrid Laurier University - School of Business & Economics; Balsillie school of international affairs

Claudia Wellenreuther

Universität Münster

Date Written: October 25, 2017

Abstract

Chinese futures markets for agricultural commodities are among the fastest growing futures markets in the world and trading behaviour in those markets is perceived as highly speculative. Therefore, we empirically investigate whether speculative activity in Chinese futures markets for agricultural commodities destabilizes futures returns. To capture speculative activity a speculation and a hedging ratio are used. Applying GARCH models, we first analyse the influence of both ratios on the conditional volatility of eight heavily traded Chinese futures contracts. Additionally, VAR models in conjunction with Granger causality tests, impulse-response analyses and variance decompositions are used to obtain insight into the lead-lag relationship between speculative activity and returns volatility. For most of the commodities, we find a positive influence of the speculation ratio on conditional volatility. The results relying on the hedging ratio are inconclusive.

Keywords: Speculation Ratio, Returns Volatility, Chinese Futures Markets, Agricultural Commodities

JEL Classification: E44, F30, G12, G13, G15

Suggested Citation

Bohl, Martin T. and Siklos, Pierre L. and Wellenreuther, Claudia, Speculative Activity and Returns Volatility of Chinese Major Agricultural Commodity Futures (October 25, 2017). CAMA Working Paper No. 6/2018, Available at SSRN: https://ssrn.com/abstract=3105109 or http://dx.doi.org/10.2139/ssrn.3105109

Martin T. Bohl

University of Muenster ( email )

Schlossplatz 2
D-48149 Muenster, D-48149
Germany

Pierre L. Siklos (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Department of Economics
75 University Avenue W.
Waterloo, Ontario N2L 3C5
Canada
519-884-0710 Ext.. 3491 (Phone)

HOME PAGE: http://pierrelsiklos.com

Balsillie school of international affairs ( email )

67 Erb Street West
Waterloo, ON N2L 6C2
Canada

Claudia Wellenreuther

Universität Münster ( email )

Schlossplatz 2
Muenster, D-48149
Germany

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