The market quality of commodity futures markets

Abstract

To study the market quality of commodity futures markets, we construct a commodity futures market quality index from the perspective of liquidity, efficiency, and volatility. Based on the market quality index, the Chinese commodity futures market operates steadily. The metal futures market is more efficient and stable than the market for agricultural futures. The Chinese commodity futures market is less liquid and more volatile than the U.S. market. We examine the determinants of market quality and find that macroeconomic variables and futures market contracts are significantly related to the market quality of Chinese commodity futures.

A good hedge or safe haven? The hedging ability of China's commodity futures market under extreme market conditions

“…These market characteristics may be the main reason for the portfolio's poor performance. Also, regarding market quality, China's metal futures have significantly higher liquidity and volatility indicators than other markets, while agricultural and energy futures have slightly poorer market quality (Liu et al, 2020). These are also reflected in portfolio performance.…”

“…When market conditions deteriorate, investors entering the futures market can avoid major market shocks and stabilize their income. Combining trading volume (see Tables A1-A3 in the appendix), liquidity indicators (see Table A4 in the appendix), and previous studies on market quality (Liu et al, 2020), the market quality of the Chinese commodity futures market is improving, with some futures markets reaching a good level. Therefore, it is possible to achieve positive returns by using the futures market for risk management of spot prices.…”

“…Finally, it takes a long time for a futures market to mature, and China's futures market is in a stage of rapid development (Ham et al, 2019). Some futures commodities are in the process of being optimized, and there is a gap between the quality of their markets and developed US markets (Liu et al, 2020). From the perspective of the development history of futures markets, this is an ordinary and necessary process.…”

A tale of two contracts: Examining the behavior of bid–ask spreads of corn futures in China

“…The remarkable development of China's futures markets also draws scholars' attention to liquidity conditions in Chinese futures markets. However, most studies on Chinese agricultural futures markets use BAS estimators based on daily price data (Liu et al, 2020), daily price and volume data (Zhang & Ding, 2018), or minute‐level trading data (Liu et al, 2021; Xu & Li, 2018). Previous studies on Chinese commodity futures commonly neglect the observed BAS traders encounter directly, which is of great interest to academics and policymakers.…”

How does skewness perform in the Chinese commodity futures market?

“…This study contributes knowledge to this ongoing issue, shedding light on the character and role of skewness in China's commodity futures market. China's commodity futures market has experienced a substantial surge in trading volume in recent decades and has become one of the most active and important transaction hubs in the world (Fung et al, 2013; Liu et al, 2020). However, existing studies of the skewness in commodity futures markets have primarily focused on developed economies, such as the US market (Fernandez‐Perez et al, 2018).…”