Price Influence and Volatility Risk Transmission of Non-Ferrous Metals Futures: Situation in China

Abstract

This paper uses the cointegration correlation theory and the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model method to conduct an empirical study on the price discovery function and influence of non-ferrous metals listed on the Shanghai Futures Exchange, as well as the international pricing power and volatility risk transmission. It is found that the futures prices of six non-ferrous metals in China have a strong price discovery function. Domestic non-ferrous metal futures copper, aluminum, and zinc have strong international pricing influence, while lead, nickel, and tin are weak. There is a significant long-term co-directional change relationship between domestic and foreign non-ferrous metal futures. The long-term price yield of non-ferrous metals (copper, aluminum, zinc, nickel) of London Metal Exchange (LME) futures market is stronger than that of China. There is a long-term cointegration trend between domestic and foreign non-ferrous metal futures prices yields, and there are differences in the risk premium of returns. There are different leverage effects in the domestic and foreign non-ferrous metal futures markets, and the risk in the foreign market is greater than that in the domestic market, and there is a greater risk in cross-market arbitrage. There is a strong mutual influence between the volatility risks of the domestic and foreign non-ferrous metal futures markets, and the risk transmission has obvious asymmetry. There is asymmetry in the spillover effect of domestic and foreign non-ferrous metal futures markets, except for aluminum and lead, the spillover effect of domestic copper, zinc, nickel and tin futures markets to foreign countries is stronger than that of foreign countries to domestic. It is recommended to promote the international development of the domestic non-ferrous metal futures market, enrich the varieties of domestic non-ferrous metal futures and options, establish and improve the basic construction of the domestic non-ferrous metal futures market, and strengthen the risk supervision of the non-ferrous metal futures market, so as to further promote the high-level development of the domestic non-ferrous metal futures market.