Study On The Common Volatility Spillover Effects Of SHFE’s Copper Futures From LME And COMEX

Copper is related closely to human, which is widely applied to electrical industry, light industry, machinery manufacturing, construction industry, defense industry and so on. The consumption of copper in the non-ferrous metal is only second to aluminum. Copper is the most widely used in electrical and electronic industry, accounting for more than general consumption. Copper is an important industrial raw materials and the change of the price has large impact on a country. According to statistics, the most rich countries about copper resources in the world is Chile, and China’s copper resources is the fourth in the world. And in copper consumption, due to the rapid development of economy in our country, the copper consumption is increasing year by year. According to the principles of economics, because China is not only the consumer of copper but also the producer, China should have important voice in terms of the decision of the world about copper prices. But in fact, China has always been lack of pricing power. World copper prices mainly are decided by the London metal exchange (LME) and the New York mercantile exchange (COMEX).At present, the establishment of the Shanghai futures exchange (SHFE) has been perfect, and copper futures trading has been in line with international standards. Therefore, it is particularly important to understand the international status of copper of the Shanghai futures exchange, and to know the international influence.Knowing the power of copper futures in China, must firstly understand volatility spillover effect from the others in the world, that is to know the others in the world is how to influence the price of copper futures in our country. So it is necessary to use the model to accurately reflect the effect. From the model, a more reasonable and more practical results can provide realistic basis and theoretical analysis for decision-making, and it is meanful for price discovery, hedging, increasing liquidity and risk aversion. So, there is urgent to learn the regulations of volatility spillover effects from other copper futures market to pass on the risk. Also, learning how to shift market risk from the copper futures to hedge, and decrease bad influence from volatility of copper on our production-oriented enterprises, can be able to arrange production plan with copper for raw material production enterprise in our country, so as to achieve the purpose of the stable domestic economic development.This article expounds the collaborative volatility spillover effects of SHFE’s copper futures from LME, COMEX, aims to make clear of the international status about pricing of the Shanghai futures exchange. This paper firstly introduces the writing background, and summarizes the researches at home and abroad. Secondly, this paper detailed introduces influence factors as copper prices of goods and investment goods. Then, this paper respectively introduces the development course of the world’s three biggest copper futures exchange, SHFE,LME and COMEX, comparing the three exchange trading on risk management system, delivery terms, investor structure and copper futures market minimum price change. Thirdly, this article vetify copper prices volatility spillover effect from the empirical aspects. On the one hand, this paper expounds that volatility spillover from LME and COMEX have effects on copper prices in the Shanghai futures exchange. On the other hand, this paper demonstrates the collaborative volatility spillover effects of SHFE’s copper futures from LME, COMEX. Based on the GARCH model and introduction of principal component analysis, the article confirmed the collaborative volatility spillover effects of SHFE’s copper futures from LME, COMEX. Finally, based on the empirical, the paper puts forward the corresponding countermeasures and Suggestions. On the one hand, we should put eyes on economic environment abroad and tendency of price of copper. On the other hand, we should strongly deepen the existing varieties of futures, develop under bonds transactions, perfect the formation of the traders, properly expand the range of the price, introduce foreign investors, and participate in futures trading abroad, etc.