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The “necessary evil” in Chinese commodity markets

John Hua Fan, Di Mo and Tingxi Zhang

Journal of Commodity Markets, 2022, vol. 25, issue C

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; Financialization; Volatility; Co-movement; Correlation (search for similar items in EconPapers)
JEL-codes: G13 G14 G41 N25 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jcomm.2021.100186

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Journal of Commodity Markets is currently edited by Marcel Prokopczuk, Betty Simkins and Sjur Westgaard

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