The Relevance Of Research About Zinc Market Between London And Shanghai

For the leverage and high risk of futures markets, we conducted future prices, volatility and issues concerned of China Shanghai Futures Exchange (SHFE) and the London Metal Exchange (LME), from aspects of the basic functions of futures markets– hedging, which can contribute to risk aversion and investors worldwide to build their own risk management strategies, help the government learn from foreign markets through the futures market to develop their own policies.This paper first introduces the basic theory of correlation research market and empirical method.Then, we describe the objective basis of correlation between two zinc markets, and select the method required for the empirical research methods. Finally,we make the empirical analysis afte the data were selected and processed. Our aim is to study the Shanghai Futures Market and the London futures market relationship between price and risk, and explore the dynamic equilibrium relationship between the two zinc markets, through the use of modern econometrics, especially time series analysis methods. In this paper, with the research background of LME futures market and SHFE futures market, we select zinc futures contract price and corresponding time series of LME futures market price from 2007 March 26 to 30 June 2010 of Shanghai futures exchange as the research object, we use the correlation coefficient with the base difference analysis, cointegration and error correction model, Granger causality test and the SVAR model, impulse response analysis and variance decomposition, BEKK-GARCH and EGARCH, TARCH model to analyze, study price relationship exists between the LME and SHFE futures and shock result of new information on the two markets and examine whether there are significant two-way volatility spillover effect and so on.Empirical results show that the market price of zinc between the Shanghai and the LME is the one-way, in other words, the London market have an unidirectional influence on zinc Shanghai market. London market information to the Shanghai market needs in two days' time digest, however, the Shanghai market's message to London, the London market will be able to digest on that day. BEKK-GARCH model shows that the external factors affecting Shanghai futures market are more than that of zinc London market, but the extent to violent fluctuations, the degree of fluctuation of London was more significantly strong than Shanghai futures market. The two markets have significant differences in residual series, which show that the impact of Shanghai zinc market is greater by its own ,in addition to by the London market effects. With RVaR-GARCH model, we conducted a risk-related Research between the Shanghai market and the London market, which found that risk aversion between the two markets is quite difficult, but it is not impossible. Facing specific problems, we need specific analysis. We can choose a different level of confidence in decision-making, based on risk preferences and the situation on the use of funds.