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An anatomy of commodity futures returns in China

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  • Zhang, Xuan
  • Xiao, Jun
  • Zhang, Zhekai

Abstract

We provide a broad empirical analysis for cross-sectional excess returns in the Chinese commodity futures market. We find two commodity futures strategies, the carry and the momentum, provide significant returns. These two factors, along with a commodity average factor, explain most cross-sectional variations in the Chinese commodity futures market. We then discuss economic interpretations for commodity carry and momentum in China in comparison with their US counterparts. We show that commodity carry in China provides a lower return than the one in the US because it is not compensated by the equity volatility innovation risk. The commodity momentum in China is closely related to the individual investors' behavioural bias of herding effects in the Chinese equity market.

Suggested Citation

  • Zhang, Xuan & Xiao, Jun & Zhang, Zhekai, 2020. "An anatomy of commodity futures returns in China," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:pacfin:v:62:y:2020:i:c:s0927538x20301086
    DOI: 10.1016/j.pacfin.2020.101366
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    More about this item

    Keywords

    Asset pricing; Chinese commodity futures; Carry; Momentum; Equity volatility innovations; Herding effects;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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