The ‘Necessary Evil’ in Chinese Commodity Markets

52 Pages Posted: 6 Oct 2019

See all articles by John Hua Fan

John Hua Fan

Griffith University - Department of Accounting, Finance and Economics

Di Mo

RMIT University

Tingxi Zhang

Griffith University - Department of Accounting, Finance and Economics

Date Written: September 26, 2019

Abstract

Enormous capital inflows into the emerging commodity futures markets in China raised concerns about the impact of speculation. Using a broad sample of 30 commodities across sectors, this paper investigates whether the increased presence of speculators in recent years destabilizes the commodities market in China. In a portfolio framework, we find that increased speculation does not give rise to higher volatilities, elevate the cross-market correlations, nor distort the market’s association with economic fundamentals. Consistent with the literature, long-short speculators contribute positively to the price discovery by reducing the broad market volatility and cross-correlation with stocks. Overall, the cross-speculative pressure remains relatively low, and the increased speculation does not cause seemingly unrelated commodities to become correlated.

Keywords: China, Commodity markets, Speculators, Volatility, Co-movement, Correlation

JEL Classification: G13, G14, G41, N25

Suggested Citation

Fan, John Hua and Mo, Di and Zhang, Tingxi, The ‘Necessary Evil’ in Chinese Commodity Markets (September 26, 2019). Available at SSRN: https://ssrn.com/abstract=3459898 or http://dx.doi.org/10.2139/ssrn.3459898

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)

Di Mo

RMIT University ( email )

124 La Trobe Street
Melbourne, 3000
Australia
0399255250 (Phone)

Tingxi Zhang

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

Brisbane, Queensland 4111
Australia

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