The Untold Story of Commodity Futures in China

Journal of Futures Markets, Forthcoming

69 Pages Posted: 21 Feb 2018 Last revised: 12 Dec 2019

See all articles by John Hua Fan

John Hua Fan

Griffith University - Department of Accounting, Finance and Economics

Tingxi Zhang

Griffith University - Department of Accounting, Finance and Economics

Date Written: December 11, 2019

Abstract

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.

Keywords: China; Commodity futures; Position limits; Margins; Price discovery; Momentum; Term structure; Hedging pressure; Liquidity; Diversification

JEL Classification: G13, G14, G15, G41, N25, Q02

Suggested Citation

Fan, John Hua and Zhang, Tingxi, The Untold Story of Commodity Futures in China (December 11, 2019). Journal of Futures Markets, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3124223 or http://dx.doi.org/10.2139/ssrn.3124223

John Hua Fan (Contact Author)

Griffith University - Department of Accounting, Finance and Economics ( email )

Brisbane, Queensland 4111
Australia
+61 (0)7 3735 3948 (Phone)
+61 (0)7 373 57760 (Fax)

Tingxi Zhang

Griffith University - Department of Accounting, Finance and Economics ( email )

Brisbane, Queensland 4111
Australia

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