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Internationalization of futures markets: Lessons from China

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  • Fan, John Hua
  • Fernandez-Perez, Adrian
  • Indriawan, Ivan
  • Todorova, Neda

Abstract

We examine the impact of internationalization on the quality of Chinese iron ore and PTA futures markets, by comparing the trading activities, costs and volatilities before and after the event. Using a difference-in-difference framework, we find that internationalization improves the market quality for PTA, while the opposite effect occurs with iron ore futures. This difference is caused in part by the activities of hedgers and speculators, while decreases in the iron ore market quality are largely explained by the erosion of locational arbitrage opportunities. Since the effects of internationalization differ across commodities, its success must be assessed case by case.

Suggested Citation

  • Fan, John Hua & Fernandez-Perez, Adrian & Indriawan, Ivan & Todorova, Neda, 2020. "Internationalization of futures markets: Lessons from China," Pacific-Basin Finance Journal, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:pacfin:v:63:y:2020:i:c:s0927538x20302560
    DOI: 10.1016/j.pacfin.2020.101429
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    More about this item

    Keywords

    China; Futures markets; Internationalization; Market quality; PTA; Iron ore;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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