The predictability of the return correlation of futures with different expirations in the Chinese futures market

Chih-Hsiang Hsu

Resources Policy, 2021, vol. 74, issue C

Abstract: This paper analyzes the return correlations of dominant and next out futures of four major non-ferrous metal futures listed on Shanghai Futures Exchange. Particularly, we study whether the return correlation between futures contracts is associated with their price spread level. The empirical evidence shows that the return correlations are higher when futures markets are in contango than in backwardation. Moreover, the spread between dominant and next out futures contracts predicts their future return correlation. Specifically, the spread positively relates to subsequent 22-day and 66-day return correlations.

Keywords: Futures markets; Return correlations; Metal futures; Spread trading (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:74:y:2021:i:c:s0301420721004608

DOI: 10.1016/j.resourpol.2021.102452

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