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Liquidity of the Chinese Agricultural Futures Market and Its Impact on Futures Price—Based on High-Frequency Data

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  • Yuanyuan Xu

    (College of Economics and Management, Huazhong Agricultural University, Wuhan 430070, China
    Hubei Rural Development Research Center, Wuhan 430070, China)

  • Chongguang Li

    (College of Economics and Management, Huazhong Agricultural University, Wuhan 430070, China
    Hubei Rural Development Research Center, Wuhan 430070, China)

Abstract

This study examines the price impact of intraday trading activity and daily market liquidity of Chinese agricultural futures by analyzing continuous intraday 15-min and daily trading datasets, respectively. Corn and soybean, the necessity of the nation and people’s survival in China, are taken as case studies. Our main findings are threefold. Firstly, there is evidence of the presence of informed trading through persistent effects of trade size for both purchases and sales. The magnitude of effects and the seasonality of informed trading vary among varieties, which support the importance of night trading for price smoothing. Secondly, the impact of liquidity costs on returns does not permanently persist. For example, there appears a significant Friday effect with a linear negative relationship in the soybean market, while an exact opposite effect can be found in the corn market for Monday. Thirdly, while the results show no effect of holding position on asset returns in the corn market, the market size of soybean futures exerts a positive Thursday effect, which is prior to the Friday effect of transaction cost. A better understanding of liquidity costs and liquidity pricing is of great significance to a sustainable development of the agricultural commodity market in China.

Suggested Citation

  • Yuanyuan Xu & Chongguang Li, 2018. "Liquidity of the Chinese Agricultural Futures Market and Its Impact on Futures Price—Based on High-Frequency Data," Sustainability, MDPI, vol. 10(12), pages 1-18, December.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:12:p:4579-:d:187752
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    References listed on IDEAS

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    1. Xingguo Luo & Wenye Cai & Doojin Ryu, 2022. "Information contents of intraday SSE 50 ETF options trades," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(4), pages 580-604, April.
    2. Miao Li & Tao Xiong & Ziran Li, 2023. "A tale of two contracts: Examining the behavior of bid–ask spreads of corn futures in China," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(6), pages 792-806, June.

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