International linkages of the Chinese futures markets

The Chinese futures markets are among the fastest growing futures markets in the world. In terms of trading volume, the Chinese soybean futures market is the world's second largest, while China's copper and aluminum futures markets are the third largest in the world. The size of the Chinese futures markets, however, is not matched by the academic research on them. This article is the first to study the relationship between the Chinese and world futures markets of copper, aluminum, soybean and wheat, using Johansen's cointegration test, error correction model, the Granger causality test and impulse response analyses. We find that the futures prices in the Shanghai Futures Exchange are cointegrated with the futures prices on the London Metal Exchange (LME) for copper and aluminum. We also find that a cointegration relationship exists for Dalian Commodity Exchange and Chicago Board of Trade (CBOT) soybean futures prices, but no such relationship for Zhengzhou Commodity Exchange and CBOT wheat futures prices. We further find that while LME has a bigger impact on Shanghai copper and aluminum futures and CBOT a bigger impact on Dalian soybean futures, the Chinese futures markets also have a feedback impact on LME and CBOT futures.