China's Commodity Futures Market-based Differential Volatility

Because of basis's significant effect in hedging, it is important to find out what factor influence our futures market's basis. The variability rule of basis has been studied by many scholars in aboard, who summarize some factors influencing the viability of basis, such as store and translation cost. Other studies indicate that the financial market's system-risk will infect the basis. They gather the date of many years form many exchange and analysis the rule of basis.The goal of this article is to empirically test the hypothesis these factors, market microstructures, macroeconomic, storage and turnover, which affect the basis risk and to estimate the magnitude of this effect. And then we used the same date in three methods (the basis forecast method and the risk premiums method and the viability method) to test what factor influence Chinese futures market basis significant. By take an empirical test, this paper find out that, many special factor such as market microstructure is not an important factor which is infect the variability of china basis. On the otherway, some traditional factor such as storage is make big influence in basis. At the same time, we gather date from SHFE and ZZSE and LME, used their futures price and spot price to test whether there is a corelation in the basis.The paper is organized as follows: Section one is the origins of basis theory and why basis risk should matter. Section two analyses the factors which are correlated with the basis. Section three details our methodology and date set of weekly observation from three commodity markets. Section four presents results on the associations between factors and basis. Section five is a summary and conclusion.We get the conclusion that our futures market is criterion more and more. But as a market only ten to twenty years old, our market is not very maturity. There is many non-stabilization factors which make significant infect in our futures market.