Liquidity of China’s agricultural futures market: measurement and cross-market dependence

Yuanyuan Xu, Jian Li, Linjie Wang and Chongguang Li

China Agricultural Economic Review, 2022, vol. 14, issue 2, 443-463

Abstract: Purpose - This paper aims to present the first empirical liquidity measurement of China’s agricultural futures markets and study time-varying liquidity dependence across markets. Design/methodology/approach - Based on both high- and low-frequency trading data of soybean and corn, this paper evaluates short-term liquidity adjustment in Chinese agricultural futures market measured by liquidity benchmark and long-term liquidity development measured by liquidity proxies. Findings - By constructing comparisons, the authors identify the seminal paper of Fong, Holden and Trzcinka (2017) as the best low-frequency liquidity proxy in China’s agricultural futures market and capture similar historical patterns of the liquidity in soybean and corn markets. The authors further employ Copula-generalized autoregressive conditional heteroskedasticity models to investigate liquidity dependence between soybean and corn futures markets. Results show that cross-market liquidity dependence tends to be dynamic and asymmetric (in upper versus lower tails). The liquidity dependence becomes stronger when these markets experience negative shocks than positive shocks, indicating a concern on the contagion effect of liquidity risk under negative financial situations. Originality/value - The findings of this study provide useful information on the dynamic evolution of liquidity pattern and cross-market dependence of fastest-growing agricultural futures in the largest emerging economy.

Keywords: Liquidity measurement; Liquidity dependence; Agricultural futures trading; Time-varying copulas; Tail dependence (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:caerpp:caer-05-2021-0099

DOI: 10.1108/CAER-05-2021-0099

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