IDEAS home Printed from https://ideas.repec.org/a/eee/ememar/v51y2022ipbs1566014122000024.html
   My bibliography  Save this article

Evidence of arbitrage trading activity: The case of Chinese metal futures contracts

Author

Listed:
  • Li, Yang
  • Brooks, Robert

Abstract

Several unique insights are documented based on a study of selected metal futures contracts traded in the U.S. and China. Based on our unique measures, we present intra market evidence that the U.S. gold and silver futures markets reflect a fully arbitraged market and U.S. copper nearly so. In contrast, the Chinese gold and silver futures markets appear to reflect an un-arbitraged market whereas the Chinese copper market is characterized as somewhat arbitraged. We explore various reasons for this evidence as well as document the differences in gold, silver, and copper futures markets between China and the U.S.

Suggested Citation

  • Li, Yang & Brooks, Robert, 2022. "Evidence of arbitrage trading activity: The case of Chinese metal futures contracts," Emerging Markets Review, Elsevier, vol. 51(PB).
    • Handle: RePEc:eee:ememar:v:51:y:2022:i:pb:s1566014122000024
    DOI: 10.1016/j.ememar.2022.100885
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1566014122000024
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ememar.2022.100885?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Richardson, J. David, 1978. "Some empirical evidence on commodity arbitrage and the law of one price," Journal of International Economics, Elsevier, vol. 8(2), pages 341-351, May.
    2. Saban Nazlioglu & Shawkat Hammoudeh & Rangan Gupta, 2015. "Volatility transmission between Islamic and conventional equity markets: evidence from causality-in-variance test," Applied Economics, Taylor & Francis Journals, vol. 47(46), pages 4996-5011, October.
    3. Holbrook Working, 1948. "Theory of the Inverse Carrying Charge in Futures Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(1), pages 1-28.
    4. Wang, Tian & Wang, Cangfeng, 2019. "The spillover effects of China's industrial growth on price changes of base metal," Resources Policy, Elsevier, vol. 61(C), pages 375-384.
    5. Acharya, Viral V. & Lochstoer, Lars A. & Ramadorai, Tarun, 2013. "Limits to arbitrage and hedging: Evidence from commodity markets," Journal of Financial Economics, Elsevier, vol. 109(2), pages 441-465.
    6. Nicholas Kaldor, 1939. "Speculation and Economic Stability," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 7(1), pages 1-27.
    7. Rabinovitch, Ramon & Silva, Ana Cristina & Susmel, Raul, 2003. "Returns on ADRs and arbitrage in emerging markets," Emerging Markets Review, Elsevier, vol. 4(3), pages 225-247, September.
    8. Charles, Amélie & Darné, Olivier & Kim, Jae H., 2015. "Will precious metals shine? A market efficiency perspective," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 284-291.
    9. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-489, October.
    10. Kim, Minho & Szakmary, Andrew C. & Mathur, Ike, 2000. "Price transmission dynamics between ADRs and their underlying foreign securities," Journal of Banking & Finance, Elsevier, vol. 24(8), pages 1359-1382, August.
    11. Lester G. Telser, 1958. "Futures Trading and the Storage of Cotton and Wheat," Journal of Political Economy, University of Chicago Press, vol. 66(3), pages 233-233.
    12. Balcilar, Mehmet & Hammoudeh, Shawkat & Asaba, Nwin-Anefo Fru, 2015. "A regime-dependent assessment of the information transmission dynamics between oil prices, precious metal prices and exchange rates," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 72-89.
    13. Nikolaos Vlastakis & George Dotsis & Raphael N. Markellos, 2009. "How efficient is the European football betting market? Evidence from arbitrage and trading strategies," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(5), pages 426-444.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shaoqiang Ma & Min Fang & Xin Zhou, 2023. "China’s Embodied Copper Flow from the Demand-Side and Production-Side Perspectives," Sustainability, MDPI, vol. 15(3), pages 1-18, January.
    2. Zhang, Huiming & Qian, Siji & Ma, Zhen, 2024. "An analysis of the market efficiency of the Chinese copper futures based on intertemporal and intermarket arbitrages," International Review of Financial Analysis, Elsevier, vol. 94(C).
    3. Brooks, Robert & Brooks, Joshua A., 2022. "Samuelson hypothesis and carry arbitrage: U.S. and China," Journal of International Money and Finance, Elsevier, vol. 128(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gao, Lin & Hitzemann, Steffen & Shaliastovich, Ivan & Xu, Lai, 2022. "Oil volatility risk," Journal of Financial Economics, Elsevier, vol. 144(2), pages 456-491.
    2. Evans, Lewis & Guthrie, Graeme, 2007. "Commodity Price Behavior With Storage Frictions," Working Paper Series 3966, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    3. George Daskalakis, Lazaros Symeonidis, Raphael N. Markellos, 2015. "Electricity futures prices in an emissions constrained economy: Evidence from European power markets," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    4. Lewis Evans & Graeme Guthrie, 2009. "How Options Provided by Storage Affect Electricity Prices," Southern Economic Journal, John Wiley & Sons, vol. 75(3), pages 681-702, January.
    5. Amir Yaron & Leonid Kogan & Dmitry Livdan, 2004. "Futures Prices in a Production Economy with Investment Constraints," 2004 Meeting Papers 128, Society for Economic Dynamics.
    6. Seamon, V. Frederick & Kahl, Kandice H., 2000. "An Analysis Of Factors Affecting The Regional Cotton Basis," 2000 Conference, April 17-18 2000, Chicago, Illinois 18924, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    7. Richter, Martin & Sørensen, Carsten, 2002. "Stochastic Volatility and Seasonality in Commodity Futures and Options: The Case of Soybeans," Working Papers 2002-4, Copenhagen Business School, Department of Finance.
    8. Chaves, Denis B. & Viswanathan, Vivek, 2016. "Momentum and mean-reversion in commodity spot and futures markets," Journal of Commodity Markets, Elsevier, vol. 3(1), pages 39-53.
    9. Daskalakis, George, 2018. "Temporal restrictions on emissions trading and the implications for the carbon futures market: Lessons from the EU emissions trading scheme," Energy Policy, Elsevier, vol. 115(C), pages 88-91.
    10. Stepanek, Christian & Walter, Matthias & Rathgeber, Andreas, 2013. "Is the convenience yield a good indicator of a commodity's supply risk?," Resources Policy, Elsevier, vol. 38(3), pages 395-405.
    11. Awan, Obaid A., 2019. "Price discovery or noise: The role of arbitrage and speculation in explaining crude oil price behaviour," Journal of Commodity Markets, Elsevier, vol. 16(C).
    12. Goswami, Alankrita & Adjemian, Michael K. & Karali, Berna, 2022. "The impact of futures contract storage rate policy on convergence expectations in domestic commodity markets," Food Policy, Elsevier, vol. 111(C).
    13. C. Peter Timmer, 2014. "The political economy of food security: a behavioral perspective," Chapters, in: Raghbendra Jha & Raghav Gaiha & Anil B. Deolalikar (ed.), Handbook on Food, chapter 2, pages 22-40, Edward Elgar Publishing.
    14. Stückler, Maria, 2002. "Handel auf Terminkontraktmärkten," Department of Economics Working Paper Series 80, WU Vienna University of Economics and Business.
    15. repec:vuw:vuwscr:19065 is not listed on IDEAS
    16. Kim, Soohyeon & Kim, Jihyo & Heo, Eunnyeong, 2017. "Convenience yield of accessible inventories and imports: A case study of the Chinese copper market," Resources Policy, Elsevier, vol. 52(C), pages 277-283.
    17. Maslyuk, Svetlana & Smyth, Russell, 2009. "Cointegration between oil spot and future prices of the same and different grades in the presence of structural change," Energy Policy, Elsevier, vol. 37(5), pages 1687-1693, May.
    18. Evans, Lewis & Guthrie, Graeme, 2007. "Commodity Price Behavior With Storage Frictions," Working Paper Series 19065, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    19. Symeonidis, Lazaros & Prokopczuk, Marcel & Brooks, Chris & Lazar, Emese, 2012. "Futures basis, inventory and commodity price volatility: An empirical analysis," Economic Modelling, Elsevier, vol. 29(6), pages 2651-2663.
    20. Ing-Haw Cheng & Wei Xiong, 2014. "Financialization of Commodity Markets," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 419-441, December.
    21. Sung Je Byun, 2017. "Speculation in Commodity Futures Markets, Inventories and the Price of Crude Oil," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).

    More about this item

    Keywords

    Futures contracts; Arbitrage; Copper; China; Derivatives;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ememar:v:51:y:2022:i:pb:s1566014122000024. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620356 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.