Risk Transmission between Chinese and U.S. Agricultural Commodity Futures Markets—A CoVaR Approach

Yangmin Ke, Chongguang Li, Andrew McKenzie and Ping Liu
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Yangmin Ke: College of Economics and Management, Huazhong Agricultural University, Wuhan 430070, Hubei, China
Chongguang Li: College of Economics and Management, Huazhong Agricultural University, Wuhan 430070, Hubei, China
Ping Liu: International School of Business & Finance, Sun Yat-Sen University, Guangzhou 510275, Guangdong, China

Sustainability, 2019, vol. 11, issue 1, 1-18

Abstract: Commodity futures markets play an important role, through risk management and price discovery, in helping firms make sustainable production and marketing decisions. An important related issue is how pricing signals between futures exchanges impact traders’ risk. We address this issue by shedding light on risk transmission between the most mature (U.S.) and the fastest growing (Chinese) commodity futures markets. Gaining greater insight of risk transmission between these key markets is vitally important to firms engaged in the efficient and sustainable trade of commodities needed to feed the world. We examine the risk transmission between Chinese and U.S. agricultural futures markets for soybean, corn, and sugar with a Copula based conditional value at risk (CoVaR) approach. We find significant upside, and to a lesser extent downside risk transmission, between Chinese and U.S. markets. We confirm the dominant pricing role of U.S. agricultural futures markets while acknowledging the increasing price discovery role performed by Chinese markets. Our results highlight that soybean markets exhibit greater risk transmission than sugar and corn markets. We argue that our findings may be explained by Chinese government policy intervention, and by the large role played by U.S. firms in the underlying cash commodity markets–both in terms of production and trade.

Keywords: risk transmission; agricultural commodity futures markets; CoVaR; China (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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