Efficiency Tests and Price Discovery in China’s Metal Futures Market
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We examine the issues of market efficiency and price discovery in the China’s metal futures market. Our findings suggest that none of the metal futures contracts examined here are priced according to the cost-of-carry model, but futures contracts studied here form a stable long-run relationship with the spot price, and hence act as adequate risk mitigation instruments. The bivariate ECM models with BEKK GARCH process are applied to testing price discoveryand volatility spillovers. According to results of aluminum futures markets, we find bi-directional causality between the futures price and the spot price, but for copper futures markets we find that price discovery occurs in the spot. In contrast with these results, the volatility spillover tests suggest that there are clearly statistically significant volatility transfers from spot to futures price in ARCH and GARCH termsfor aluminum, but for copper futures markets there are clearly statistically significant volatility transfers from futures to spot price in ARCH and GARCH terms.
Abstract
We examine the issues of market efficiency and price discovery in the China’s metal futures market. Our findings suggest that none of the metal futures contracts examined here are priced according to the cost-of-carry model, but futures contracts studied here form a stable long-run relationship with the spot price, and hence act as adequate risk mitigation instruments. The bivariate ECM models with BEKK GARCH process are applied to testing price discoveryand volatility spillovers. According to results of aluminum futures markets, we find bi-directional causality between the futures price and the spot price, but for copper futures markets we find that price discovery occurs in the spot. In contrast with these results, the volatility spillover tests suggest that there are clearly statistically significant volatility transfers from spot to futures price in ARCH and GARCH termsfor aluminum, but for copper futures markets there are clearly statistically significant volatility transfers from futures to spot price in ARCH and GARCH terms.
참고문헌 (26)
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