Liquidity of the Chinese Agricultural Futures Market and Its Impact on Futures Price—Based on High-Frequency Data

Yuanyuan Xu and Chongguang Li
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Yuanyuan Xu: College of Economics and Management, Huazhong Agricultural University, Wuhan 430070, China
Chongguang Li: College of Economics and Management, Huazhong Agricultural University, Wuhan 430070, China

Sustainability, 2018, vol. 10, issue 12, 1-18

Abstract: This study examines the price impact of intraday trading activity and daily market liquidity of Chinese agricultural futures by analyzing continuous intraday 15-min and daily trading datasets, respectively. Corn and soybean, the necessity of the nation and people’s survival in China, are taken as case studies. Our main findings are threefold. Firstly, there is evidence of the presence of informed trading through persistent effects of trade size for both purchases and sales. The magnitude of effects and the seasonality of informed trading vary among varieties, which support the importance of night trading for price smoothing. Secondly, the impact of liquidity costs on returns does not permanently persist. For example, there appears a significant Friday effect with a linear negative relationship in the soybean market, while an exact opposite effect can be found in the corn market for Monday. Thirdly, while the results show no effect of holding position on asset returns in the corn market, the market size of soybean futures exerts a positive Thursday effect, which is prior to the Friday effect of transaction cost. A better understanding of liquidity costs and liquidity pricing is of great significance to a sustainable development of the agricultural commodity market in China.

Keywords: liquidity of commodity market; effective spread; informed trading; asset pricing model; China (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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