The Effects Of Financialisation Of China's Nonferrous Metals On The Price Discovery In Futures Markets

The volatility of commodity prices have significantly increased since 2006, and the deviation between futures prices and spot prices remained large frequently on the maturity date of future contracts. Many scholars both here and abroad consider the substantial participation of institutional investors as the main reason to cause this phenomenon. The phenomenon that large amount of financial capital enter the commodity futures markets, gives rise to the higher fluctuation of commodity prices, and leads to the linkage between commodity prices and other financial assets prices, is called financialisation of commodity. Because it may break the linkage between futures prices and spot prices, so it may weaken the price discovery in futures markets. This article researches on this problem.This article shows that the entering of financial capital into the futures markets is the main reason that caused the higher fluctuation of the bases. So it's reasonable to use the volatility of bases to compare the degree of financialisation on each period of time. We base on this hypothesis to analyse the price discovery in futures markets during each stage of financialisation, and then come to our conclusions. We take China's copper market and aluminum market as the objects of this study. We use t test to compare the volatility of bases on each period of time, and it shows that the degree of financialisation of copper market rised after 2006, and on aluminum market, the conclusion is opposite. Cointegration test shows that financialisation has no remarkable effect on the long-run equilibrium relationship between futures prices and spot prices; Granger causality tests shows that financialisation has no clear effect on the lead-lag relationship between futures prices and spot prices; Furthermore, we use MIS model to measure the futures markets' contribution in price discovery, it shows that financialisation weakens the price discovery in futures markets, but it's not enough to change the leading market in price discovery.