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Empirical Properties, Information Flow, and Trading Strategies of China's Soybean Crush Spread

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  • Qingfeng Wilson Liu
  • Hui He Sono

Abstract

This study examines the empirical properties of soybean, soymeal, and soyoil futures prices at China's Dalian Commodity Exchange. We find that the three series are cointegrated, and that the cointegration relationship is characterized by significant seasonality and consistent time trends. Further, employing a new trivariate VAR‐GARCH model, we find evidence of one‐way information flow from the soymeal and soyoil markets to the soybean market, but bidirectional information flow and volatility spillover between the soymeal and soyoil markets. Trading simulations based on the mean‐reverting tendencies of the cointegration relationship and 5‐day averages of the commonly‐used spread both generate positive returns. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 36:1057–1075, 2016

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  • Qingfeng Wilson Liu & Hui He Sono, 2016. "Empirical Properties, Information Flow, and Trading Strategies of China's Soybean Crush Spread," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(11), pages 1057-1075, November.
    • Handle: RePEc:wly:jfutmk:v:36:y:2016:i:11:p:1057-1075
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    Cited by:

    1. Hussein Abdoh & Michael Chitavi, 2024. "The impact of deviations from soybean product crushing estimates on return and risk," Agricultural Economics, International Association of Agricultural Economists, vol. 55(2), pages 181-199, March.
    2. Sisi Qin & Wee‐Yeap Lau, 2023. "Cross‐border and cross‐commodity volatility spillover effects of Chinese soybean futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(12), pages 1836-1852, December.
    3. Zhuo Chen & Bo Yan, 2022. "The impact of trade policy on soybean futures in China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(4), pages 1152-1163, June.
    4. Liu, Jianhe & Lu, Luze & Zong, Xiangyu & Xie, Baao, 2023. "Nonlinear relationships in soybean commodities Pairs trading-test by deep reinforcement learning," Finance Research Letters, Elsevier, vol. 58(PC).
    5. Zhou, Xinquan & Bagnarosa, Guillaume & Gohin, Alexandre & Pennings, Joost M.E. & Debie, Philippe, 2023. "Microstructure and high-frequency price discovery in the soybean complex," Journal of Commodity Markets, Elsevier, vol. 30(C).

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