The untold story of commodity futures in China
John Hua Fan and
Journal of Futures Markets, 2020, vol. 40, issue 4, 671-706
We investigate the behavior of commodity futures risk premia in China. In the presence of retail‐dominance and barriers‐to‐entry, the term structure and momentum premia remain persistent, whereas hedging pressure, skewness, volatility, and liquidity premia are distorted by time‐varying margins and strict position limits. Furthermore, open interest, currency, and inflation premia are sensitive to institutional settings. The observed premia cannot be attributed to common risks, sentiment, transactions costs, or data‐snooping, but are related to liquidity, anchoring, and regulation‐induced limits‐to‐arbitrage. We highlight the distinctive features of Chinese futures markets and assess the challenges posed to theories of commodity risk premia.
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