Speculative Activity and Returns to Volatility of Chinese Major Agricultural Commodity Futures
Pierre Siklos ()
LCERPA Working Papers from Laurier Centre for Economic Research and Policy Analysis
Chinese futures markets for agricultural commodities are among the fastest growing futures markets in the world and trading behaviour in those markets is perceived as highly speculative. Therefore, we empirically investigate whether speculative activity in Chinese futures markets for agricultural commodities destabilizes futures returns. To capture speculative activity a speculation and a hedging ratio are used. Applying GARCH models we first analyse the influence of both ratios on the conditional volatility of eight heavily traded Chinese futures contracts. Additionally, VAR models in conjunction with Granger causality tests, impulse-response analyses and variance decompositions are used to obtain insight into the lead-lag relationship between speculative activity and returns volatility. For most of the commodities, we find a positive influence of the speculation ratio on conditional volatility. The results relying on the hedging ratio are inconclusive.
Keywords: Speculation Ratio; Returns Volatility; Chinese Futures Markets; Agricultural Commodities (search for similar items in EconPapers)
JEL-codes: E44 F30 G12 G13 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-fmk and nep-mac
Date: 2018-01-30, Revised 2018-01-30
Note: LCERPA Working Paper No. 2018-5, January 2018.
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Working Paper: Speculative activity and returns volatility of Chinese major agricultural commodity futures (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:wlu:lcerpa:0111
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