Integration of the Chinese Aluminum Market into the Global Economy and the Efficiency of the Shanghai Futures Exchange: Empirical Study

[摘要] In my thesis I address two questions regarding the aluminum market in China. The first question analyzes the degree to which the Chinese aluminum market is integrated into the world market. I use the Johansen test for cointegration of time series data in SAS statistical software to compare the volatility of daily aluminum spot prices quoted at the Chinese aluminum Commodity Exchange market in Shanghai (SHFE) relative to its counterparts in London (LME), and New York (COMEX) in order to determine the degree to which prices at SHFE follow the same pattern as prices at LME and COMEX. I also perform a series of cointegration tests to determine whether the results derived for Commodity Exchanges also apply to the physical aluminum markets. The results indicate that the three Commodity Exchange markets are not integrated together as one market system. SHFE displays a certain degree of economic integration with the LME but cannot be regarded as economically integrated with COMEX. Nevertheless, LME and COMEX exhibit a relatively high degree of economic integration between themselves. The results can be extended to the physical aluminum market in the Shanghai region but not to China as a whole, most likely because of insufficient number of data observations. The second question concerns the efficiency of aluminum trading at SHFE, relative to COMEX and LME. The precision, with which termed aluminum futures contract prices on their maturity are able to predict spot prices, serves as a standard measure of Commodity Exchange efficiency. Using the same testing procedure as for the first question I compare relative volatility of spot and futures prices at each Commodity Exchange, and rank their relative performance. The results show that SHFE displays somewhat better efficiency results than LME but worse than COMEX. In level terms, the efficiency of LME cannot be confirmed, SHFE comes close to being efficient and COMEX can be regarded as highly efficient.

[发布机构] the University of Pittsburgh

[效力级别] market efficiency