Asymmetric multifractal features of the price–volume correlation in China’s gold futures market based on MF-ADCCA

In recent years, fractal theory has become a recognized research direction for explaining various complex phenomena that are difficult to constrain in the conventional efficient market hypothesis for financial markets. Moreover, because the gold futures prices are crucial to the futures market, research on the relationship between quantity and price is important for understanding market fluctuations. Therefore, this paper conducts an empirical analysis of the multifractal features and asymmetry in the price–volume correlation of China’s gold futures market based on the multifractal asymmetric detrended cross-correlation analysis method¹ . Results show that the cross-correlation between market price and volume is asymmetric and multifractal and that multifractal features are stronger when the price increases compared with when it declines. Moreover, the multifractal features vary over time. These findings indicate that the risk of China’s gold futures market will change with the price trend over time.     

Speculative Futures Trading under Mean Reversion

This paper studies the problem of trading futures with transaction costs when the underlying spot price is mean-reverting. Specifically, we model the spot dynamics by the Ornstein–Uhlenbeck, Cox–Ingersoll–Ross, or exponential Ornstein–Uhlenbeck model. The futures term structure is derived and its connection to futures price dynamics is examined. For each futures contract, we describe the evolution of the roll yield, and compute explicitly the expected roll yield. For the futures trading problem, we incorporate the investor’s timing option to enter or exit the market, as well as a chooser option to long or short a futures upon entry. This leads us to formulate and solve the corresponding optimal double stopping problems to determine the optimal trading strategies. Numerical results are presented to illustrate the optimal entry and exit boundaries under different models. We find that the option to choose between a long or short position induces the investor to delay market entry, as compared to the case where the investor pre-commits to go either long or short.     

Optimal portfolios in commodity futures markets

We develop a general approach to portfolio optimization in futures markets. Following the Heath–Jarrow–Morton (HJM) approach, we model the entire futures price curve at once as a solution of a stochastic partial differential equation. We also develop a general formalism to handle portfolios of futures contracts. In the portfolio optimization problem, the agent invests in futures contracts and a risk-free asset, and her objective is to maximize the utility from final wealth. In order to capture self-consistent futures price dynamics, we study a class of futures price curve models which admit a finite-dimensional realization. More precisely, we establish conditions under which the futures price dynamics can be realized in finite dimensions. Using the finite-dimensional realization, we derive a finite-dimensional form of the portfolio optimization problem and study its solution. We also give an economic interpretation of the coordinate process driving the finite-dimensional realization.     

Price discovery in spot and futures markets: a reconsideration

We reconsider the issue of price discovery in spot and futures markets. We use a threshold error correction model to allow for arbitrage opportunities to have an impact on the return dynamics. We estimate the model using quote midpoints, and we modify the model to account for time-varying transaction costs. We find that (a) the futures market leads in the process of price discovery and (b) the presence of arbitrage opportunities has a strong impact on the dynamics of the price discovery process.     

Price dynamics in refined petroleum spot and futures markets

This article characterizes the spot and futures price dynamics of two important physical commodities, gasoline and heating oil. Using a non-linear error correction model with time-varying volatility, we demonstrate many new results. Specifically, the convergence of spot and futures prices is asymmetric, non-linear, and volatility inducing. Moreover, spreads between spot and futures prices explain virtually all spot return volatility innovations for these two commodities, and spot returns are more volatile when spot prices exceed futures prices than when the reverse is true. Furthermore, there are volatility spillovers from futures to spot markets (but not the reverse), futures volatility shocks are more persistent than spot volatility shocks, and the convergence of spot and futures prices is asymmetric and non-linear. These results have important implications. In particular, since the theory of storage implies that spreasd vary with fundamental supply and demand factors, the strong relation between spreads and volatility suggests that these fundamentals — rather than trading induced noise — are the primary determinants of spot price volatility. The volatility spillovers, differences in volatility persistence, and lead-lag relations are consistent with the view that the futures market is the primary locus of informed trading in refined petroleum product markets. Finally, our finding that error correction processes may be non-linear, asymmetric, and volatility inducing suggests that traditional approaches to the study of time series dynamics of variables that follow a common stochastic trend that ignore these complexities may be mis-specified.     

An analysis of time-varying commodity market price discovery

We propose a model of time-varying price discovery based on a rolling-window error correction framework. We show that price discovery in nine commodities is dominated by the spot market, while, in only six commodities, price discovery is dominated by the futures market. Our findings, therefore, challenge the well-established view in commodity markets that it is the futures market which dominates the price discovery process. We also show the economic significance of price discovery through a portfolio construction and hedging strategy.     

The role of gold futures in mitigating the impact of economic uncertainty on spot prices: Evidence from China

This paper studies the co-integration relationship and volatility spillover effect between China's gold futures and spot prices through the VECM-BEKK-GARCH model. Then, MSGARCH and DCCE-GARCH are applied to study the relationship among China's gold futures market, spot market price volatility and the stabilization effect in uncertain economic environments. This paper enriches the current research, providing gold market participants with hints to address economic uncertainty. The empirical results show that China's gold futures market has a weak stabilization effect on spot price volatility. In scenarios with uncertain economic information and uncertain macroeconomic changes, the correlation between gold futures and spot price volatility is reduced in China, and the role of gold futures in stabilizing the spot price weakens. Furthermore, with economic uncertainty, the fluctuation range of the gold futures price is greater than that of the spot price, with a tendency of more frequent fluctuations. This also means that the effectiveness of the futures market in regulating the spot price will be reduced, and gold market regulators need to stabilize the market through alternative methods to futures.     

Futures and forward price differential and the effect of marking‐to‐market: Australian evidence

The objective of this paper is to examine the effects of marking‐to‐market of futures contracts on the price differential between futures and forward contracts based on the predictions of the Cox, Ingersoll and Ross (1981) (CIR) model. Cox et al ., (1981) derive a series of propositions with respect to the relationship between futures and forward prices and a set of testable implications. These are tested empirically in this paper using Australian data from November 1991 to June 1997. The results provide evidence of the presence of significant futures and forward price differences, where the futures price is consistently below the forward price. Only partial support is found for the Cox et al ., (1981) propositions, implying that the effect of marking‐to‐market is not able to fully account for the price differential. Therefore, it is not possible to rule out the influence of other institutional factors on the futures‐forward price difference.     

Futures and forward price differential and the effect of marking‐to‐market: Australian evidence

The objective of this paper is to examine the effects of marking‐to‐market of futures contracts on the price differential between futures and forward contracts based on the predictions of the Cox, Ingersoll and Ross (1981) (CIR) model. Cox et al ., (1981) derive a series of propositions with respect to the relationship between futures and forward prices and a set of testable implications. These are tested empirically in this paper using Australian data from November 1991 to June 1997. The results provide evidence of the presence of significant futures and forward price differences, where the futures price is consistently below the forward price. Only partial support is found for the Cox et al ., (1981) propositions, implying that the effect of marking‐to‐market is not able to fully account for the price differential. Therefore, it is not possible to rule out the influence of other institutional factors on the futures‐forward price difference.     

Will tighter futures price limits decrease hedge effectiveness?

The events triggered by the Global Financial Crisis (GFC) have led to calls for the regulation of financial markets. Given that regulation may involve opportunity costs, this paper examines whether tighter futures price limits can reduce the effectiveness of a futures hedge. We propose a new model that uncovers the underlying spot-futures dynamics when futures prices are subject to limits. We use the model to determine the maximum number of limit days that can occur before minimum variance hedging outcomes are adversely affected. Application of this model to the US soybean and corn markets reveals that existing limits do not reduce hedge effectiveness. If the frequency of limit days increases from current levels of 1% to approximately 3–4%, conventional hedging approaches will experience economically and statistically significant increases in portfolio variance. These results are important for hedgers, clearing houses and regulators in light of the recent calls for derivatives regulation.     

THE PRICING OF FUTURES CONTRACTS AND THE ARBITRAGE PRICING THEORY

When interest rates are stochastic, the cash flows of futures and forward contracts differ because of the marking-to-market requirement of futures contracts. The price effect of this difference is examined here by applying the risk and return model of the arbitrage pricing theory. The resulting futures pricing equation is preference free, and is obtainable using other no-arbitrage approaches. The pricing equation suggests that the price difference is due to the covariance of spot asset returns and interest rates. An empirical study is conducted on the Major Market Index futures from October 1, 1984 to September 27, 1985. Results indicate that the covariance, extracted by the Kalman filter according to the pricing equation, is significant in the pricing of futures contracts.     

Tests of alternate models for the pricing of Korean Treasury bond futures contracts

It is known that KTB futures contracts are significantly underpriced when the model price is calculated using the ad hoc cost-of-carry model employed in industry. This paper examines whether this underpricing phenomenon is caused by using the wrong model to price the futures contracts. This paper documents that the difference between the model price and the market price of KTB futures decreases substantially if the correct term–structure-based model is used to estimate the model price of KTB futures. In addition, even though the underpricing phenomenon can be exploited to generate some trading profits, the profits cannot be regarded as arbitrage profits. Thus, we believe that the underpricing phenomenon is illusory, and that much of it can be attributed to the wrong model being used in the industry.     

中国黄金期货价格影响因素研究

采用线性回归、Breush-Godfrey LM相关性检验、VAR模型的方差分解和脉冲响应图、价格波动率的单位根检验和Granger格兰杰因果检验等方法对中国黄金期货价格的影响因素进行实证研究。结果表明:上海、香港、伦敦的黄金现货和纽约黄金期货价格以及美元指数是影响中国黄金期货价格的主要因素,而中国黄金期货价格的波动显著受到伦敦黄金现货价格波动和纽约黄金期货价格波动的影响。虽然目前中国黄金期货市场已具备一定的规避风险功能,且初具价格发现功能,但国际影响力有待继续提升。     

中国饲料工业期货的价格发现实证研究

本文借助向量自回归模型、协整检验、误差修正模型、方差分解、脉冲响应函数等方法,以中国唯一的饲料工业期货———大连商品交易所豆粕期货品种为例,研究了期货价格与现货价格之间的动态关系,定量刻画了期货市场在价格发现中的作用。研究结果显示:豆粕期货价格与现货价格存在相互引导关系,并且期货与现货价格之间存在长期均衡关系,对豆粕期货来说,期货市场在价格发现功能中起到主导作用。     

Order flow,dealer profitability,and price formation

We analyze the dynamics of the S&P 500 futures price, finding both short- and long-run effects of order flow on price. While price moves strongly with the order flow in the short-run, the long-run impact is slightly negative, attributable to costly slippage from a hedging propensity in futures markets. We find strong evidence of a state dependence in the relation between price and order flow, using both volume and floor trader income measures as states. We also find that both the long- and short-run impacts of order flow are greater when dealer income is higher.     

A Pricing Model for Quantity Contracts

An economic model is proposed for a combined price futures and yield futures market. The innovation of the article is a technique of transforming from quantity and price to a model of two genuine pricing processes. This is required in order to apply modern financial theory. It is demonstrated that the resulting model can be estimated solely from data for a yield futures market and a price futures market. We develop a set of pricing formulas, some of which are partially tested, using price data for area yield options from the Chicago Board of Trade. Compared to a simple application of the standard Black and Scholes model, our approach seems promising.     

Investor sentiment‐styled index in index futures market

In this paper, we define and analyze the sentiment‐styled index for the CSI 300 index futures in the Chinese futures market. Our sentiment‐styled index for the CSI 300 index futures from April 16, 2010 to April 30, 2019 is constructed by the first and second principal component analyses, rather than only by the first principal component analysis used in the Baker and Wurgler (Journal of Finance 61(4): 1645–1680, 2006) method. The sentiment‐styled index explains 78.38% of the sample variance. The vector error correction model is adapted to study the dynamics of cointegration of the sentiment‐styled index and the logarithmic futures price. We use the GARCH‐DCC model to illustrate the spillover effect between the sentiment‐styled index and the Chinese futures market. We show that this investor sentiment‐styled index does have the price discovery from the Granger causality and common factor weights and the hedging function from the Baba–Engle–Kraft–Kroner model empirically; furthermore, we use the curvature term of the sentiment‐styled index to determine the multiple unit roots. More empirical results for the sentiment‐styled index of the Chinese stock market, the sentiment‐styled index of the CSI 300 index futures, and the return of the CSI 300 index futures market are studied in this paper.     

基本有色金属期货市场价格波动实证分析

依据铜、铝和锌三种典型性基本有色金属在金融危机前后的期货价格波动数据,运用分解-合成框架和时变TVP-VAR分析模型,考量影响基本有色金属期货价格波动重大事件和长期趋势价格波动的因素及价格时变特征。结果发现:铜、铝和锌三种基本有色金属期货的价格走势基本一致,且与中国宏观经济密切相关,其价格的最低点都出现在金融危机期间,而价格的最高点基本都出现在经济繁荣期;基本有色金属价格存在同涨同跌关系,而且涨跌幅基本趋势相一致。鉴此,可以对具有周期变化特征的基本有色金属价格走势进行预测,并规避价格波动的风险。     

A Comparative Study on Interday Market Volatility and Intraday Price Transmission of Nikkei/JGB Futures Markets between Japan and Singapore

Using both daily and intraday data, this paper investigates the impact of different futures trading mechanisms employed by TSE/OSE (automated system with Saitori matching) in Japan and SIMEX (open outcry) in Singapore. In order to examine the relative performance, we compare interday return volatility and intraday price transmission of Nikkei/JGB futures between Japan and Singapore. Regarding Nikkei futures, we find no significant difference in the performance measurements between OSE and SIMEX. We find both OSE and SIMEX have significant higher variances and negative first-order autocorrelation at the open than at the close. We also find Granger causality in both directions of intermarket price transmission between OSE and SIMEX. Regarding JGB futures, empirical results are different between TSE and SIMEX. JGB futures on SIMEX has a lower volatility at the open and first-order autocorrelation at the open is not significant. In addition, we find unidirectional lead from Japan to Singapore in JGB futures. In conclusion, since Japanese trading system does not reduce return volatility and causes delay in the open, the benefit of Saitori matching is questionable. On the other hand, we find weak evidence that the Japanese trading system is more efficient in price reporting. There is no conclusive evidence that either SIMEX open outcry or TSE/OSE Saitori matching dominates the price discovery process.     

美国黄金期货与黄金现货互动关系的实证研究

文章通过建立误差修正模型（ Error Correction ModeL,ECM）和基于持有成本理论的误差修正模型（ Error Correction ModeL Cost of Carry,ECM-CoC）,对美国黄金市场的期货与现货市场在金融危机前后的互动关系进行了实证分析。结果表明：在2007年金融危机前美国黄金期货市场引导黄金现货市场,期货市场的价格发现功能得以实现;在金融风暴后美国黄金现货和期货市场存在双向引导关系;美国黄金期货市场和现货市场之间存在长期均衡关系,期货市场和现货市场均存在误差修正机制,美国现货市场价格恢复均衡的调整速度高于黄金期货市场。