Dissertation
Dissertation > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods

The Empirical Analysis of Futures Price Relations Between the Shanghai Futures Exchange and the London Mental Exchange

Author Deng
Tutor DaiXiaoFeng
School Hunan University
Course Finance
Keywords SHFE and LME price relationships nonlinear causality test
CLC F724.5;F224
Type Master's thesis
Year 2009
Downloads 73
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Futures market’s basic function is "hedging, price discovery and risk aversion", and it is an important and indispensable part of modern factor market. Although the development of China’s futures market is not long, it developed rapidly. In recent years, especially after rectification, the standardization of China’s futures market has improved significantly and the domestic futures market pays an increasingly apparent and important role in the international futures markets.London Metal Exchange, as the world’s largest futures exchange, its metal futures price movement reflects the expectation of the international metal price trend; it is of great significance in guiding the world’s metal production and consumption. Presently, China has become the world’s largest consuming country in copper and aluminum, so researching into dynamic relationships between prices of the related futures in the SHFE and LME has important significance for us to understand the role and status of China Metal Market in the aspect of pricing international bulk commodities. The informed relevant literature use the linear Granger causality method to study the relationship between futures market prices, but in fact the economic variables are often contain the non-linear configuration, so it is difficult to explain the price-determined relations accurately between the two variables by considering the price relation between two futures market only from the point of linear method.This paper takes an empirical research on the relationship between copper and aluminum futures in SHFE and LME. Firstly, we exams the non-linear configuration in metal futures prices of SHFE and LME. The Results of BDS statistic and the R/S Method test show that the copper and aluminum futures’configuration in SHFE and LME are obvious non-linear. If we use linear causality method, we will have a weak screening capacity. In this paper, based on the existence of nonlinear configuration in copper and aluminum, we use the non-linear causality methods to empirical research about their price relationships. The result demonstrates that there exist a bidirectional non-linear Granger causal relation between copper and aluminum futures in SHFE and LME. As a result of non-linear filter may be due to fluctuations, the non-linear causal relations among adjusted prices sample decreases significantly after a filtration to the sample volatility by GARCH model, this indicates that non-linear Granger causal is to a large extent attribute to Volatility effect.

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