The "Necessary Evil" in Chinese Commodity Markets
Research by John Hua Fan, Ph.D., Griffith Business School, Griffith University, Australia and Member of the GCARD’s Editorial Advisory Board; Di Mo, Ph.D., School of Economics, Finance and Marketing, RMIT University, Australia; and Tingxi Zhang, Griffith Business School, Griffith University, Australia
This paper investigates the impact of enormous capital inflows into commodity futures markets in China. Mimicking the positions of both passive long and systematic long-short speculators, the study finds increased speculation does not give rise to higher volatilities and co-movements, nor distorts the market’s association with economic fundamentals. Moreover, long-short speculators who trade on commodity fundamental information contribute positively to price discovery by reducing the broad market volatility and cross-correlation with stocks. Overall, intensified speculation did not have an adverse impact on the broad Chinese commodity futures market.
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