A Study Of The Relationship Between Exchange For Physicals And The Function Of Chinese Commodity Futures Markets

An Exchange for Physicals (EFPs) is an important pattern of delivery, and it allows commercial traders to perform a physical and a futures transaction simultaneously with the same trading partner. This dissertation makes use of data about every one of EFPs on the soybean, rubber and wheat futures markets in China, between 2000 and 2006, and survival analyze to estimate the duration of executing EFPs. An Accelerated Failure Time (AFT) model is used to estimate the effect of several economic variables on the timing of EFP transactions.The existing literature on futures markets contains few references to EFPs beyond nothing that they involve a transaction away from an exchange itself. In fact, there are no models that aim to understand the dynamic properties of these transactions from day to day or year to year. Increased EFPs volume relative to total trading volume in some futures markets has attracted the attention of the department of intendance, which worries that EFPs reduce liquidity by taking trading volume from the trading pit, let alone to determine whether the prospect of a later EFP encourages commercial firms to use the futures markets in the first place.A deeper analysis of the EFP data provided shows that not only the proportion of EFPs to total volume, but also the volume of EFPs itself, the average size of the EFPs and the timing of their execution differs from month to month and year to year. Timing of EFP transactions, also known as duration, shows variation across commodities. Interviews with commercial traders showed their inclination to execute their EFPs at the lows of the day when the market was bullish. Traders maximize the value of the embedded option implicit in a price-fixing transaction in which the seller usually decides when to execute the EFPs. A search model is proposed to test the declining value of the option. It is tested using an Accelerated Failure Time (AFT) model to calculate the elasticties of duration to contemporaneous values of a set of variables. These elasticizes show the expected signs in most cases. However, if calculating them by year or delivery month, non-trivial differences are found in each of the three markets. The prospect of a later EFP encourages commercials to initiate the futures position. In addition, the findings of this study support the perspective that commercial firms'use of futures markets results more from commercial opportunities tempered by transaction costs than risk aversion, as commonly thought. This dissertation demonstrates the relation between EFPs and lead relation about price and volatility in the spot-futures markets in China. In terms of Volatility, there are bi-directional lead relations in Spot- futures of Rubber, and futures market volatility lead effect to the spot market more than vice versa. In addition, soybean market is only futures market Unitary Volatility lead effect to the spot market, there is no volatility lead relation in wheat's spot- futures market. Meanwhile, the article Systematically Studied the Volatility effect on trading Volume and empty volume to spot- futures market in view of market information.We make use of the MDH (Mixture Distribution Hypothesis) theory, when making an analysis of open interest of futures markets. We could compartmentalize open interest into probable open interest of exchange for physical and improbable open interest of exchange for physical in term of this theory. There is a prominence positive relation between improbable open interest of exchange for physical and volatility. So a conclusion that negative relation between EFPs and volatility on the soybean, rubber and wheat futures markets, and EFPs is effective on reducing the volatility of futures markets.