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Dynamic dependence of futures basis between the Chinese and international grains markets

Author

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  • Wang, Hao
  • Dong, Yizhe
  • Sun, Mingli
  • Shi, Baofeng
  • Ji, Hao

Abstract

Basis trading has emerged as a prominent trading strategy in the global grains markets. Understanding basis trading dynamics in this context requires an investigation of the interrelationships among futures basis values across different markets. Using data of corn and wheat over the period 2012–2022, we investigate the high-dimensional linkages of basis at various frequencies between the Chinese and international grains markets. We find a strong positive dynamic correlation between the basis of grains in international markets. However, the basis of Chinese corn (and wheat) exhibits weaker positive correlations with their international counterparts. Our further exploration uncovers temporal variations in the multi-dimensional interdependence structures among these basis values, with the international corn consistently occupying a pivotal central position. Given China's preeminent status as a grain importer, the implications of our study extend to the realm of adept risk management in the context of global grain trading amid an uncertain world.

Suggested Citation

  • Wang, Hao & Dong, Yizhe & Sun, Mingli & Shi, Baofeng & Ji, Hao, 2024. "Dynamic dependence of futures basis between the Chinese and international grains markets," Economic Modelling, Elsevier, vol. 130(C).
    • Handle: RePEc:eee:ecmode:v:130:y:2024:i:c:s0264999323003966
    DOI: 10.1016/j.econmod.2023.106584
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    More about this item

    Keywords

    Grain market; Futures basis; Dynamic linkage; Multidimensional dependence; DCC-GARCH model; Wavelet-vine copula;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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