Research On The Determinants Of Commodity Futures Contract Success And Failure In China

After more than 20 years of exploration, China’s commodity futures market has made great achievements in the market scale, product innovation, legal system, international influence and so on. It is closely linked with Chinese economic development and financial reform, the volume of commodity futures market has been among the best in the world for five consecutive years. At present, among the listed 43 commodity futures contracts in our country, there are active trading varieties such as soybean meal and copper, as well as other varieties of low trading volume such as wire and fuel oil. All of the futures contracts launched by the exchange, the underlying spot all has the natural attributes which are homogeneity, easy to divide the quality grade, suitable for storage and transportation, but the performance of different futures contracts are quite different. It suggests in addition to the commodity characteristics, there are other key factors influence the success or failure of the commodity futures contracts. The success or failure of commodity futures contracts is directly related to trading activity, it matters the function of price discovery and risk management, also determines the ability of futures exchange’s continuous operation. More new contracts are listing under the circumstance that some contracts sustain low level of trading volume, so it is meaningful to explore the key factors which affect the success or failure of a futures contract and take effective measures to improve the inactive contract trading volume, make sure of contracts’ success. In view of this, this paper will explore the key factors determing the success or failure of commodity futures contracts on the basis of the characteristics of commodity futures market in China,.According to the theory of optimal innovation of futures contract and the previous empirical studies, trading volume is considered as equivalent variable on behalf of success or failure of the contract. This paper constructs the key factors system affecting success or failure of commodity futures contracts from three aspects which are nature of underlying spot, characteristics of futures contracts and the macro environment. The nature of the underlying spot including two variables which are cash market size and price volatility, the characteristics of futures contracts including three variables which are the liquidity cost of competitive contract, effect of complementary contract and size of contract, the impact of the macroeconomic environment including the broad money growth rate. Due to the particularity of futures trading, during the transaction a sort of futures based on underlying spot has several contracts with different delivery month. The main contract, which contains the most abundant information and is conducive to the formation of a continuous time series, so the desired datas of 12 commodity futures contracts are selected to analysis panel datas. In this paper, index values are calculated by certain method using monthly data for empirical analysis with datas from the Wind.After a series of model specification tests, this paper constructs a random effects regression model, through the empirical test between the key factors system and trading volume of the 12 kinds of commodity futures contracts, panel regression results show that the regression coefficients of the cash market size, cash market price volatility, competitive contract liquidity cost, futures contract size, complementary contract effect and the broad money growth rate are significant, and the impacts on the trading volume are in line with expectations, indicating that these six variables are the key factors affecting the success or failure of commodity futures contract. Specifically, a large value of the spot market and cash prices fluctuating enough, lower liquidity of competitive foreign futures contract, with complementary and macroeconomy fluent are conducive to the success of commodity futures contracts. Greater contract unit increasing the futures trading threshold is not conducive to the success of commodity futures contracts.Futures contracts trading activity directly reflects the success or failure of futures contracts, its abnormal changes will lead to unstable operation of futures exchange, and adversely affect the futures investment activities, so the identification and analysis of trading volume change points has important theoretical significance and practical value to analysis variation of trading activity, investors management, exchange regulation and so on. Through using PPM to identify and analysis change points of the representative Dalian soybean meal and Shanghai copper futures contracts with long span of time, found that in most cases, abnormal change of the cash market size, cash market price volatility, liquidity cost of competitive contracts, the broad money growth rate are ahead or synchronized to change points of the volume, thus these four variables mutation will lead trading volume to mutation. At the same time, other unexpected events will also cause the volume change. The abnormal changes of agricultural products and nonagricultural products futures contract trading volume attribute to different emergencies. Compared to soybean meal futures, copper futures trading activity is more easily influenced by macroeconomic events.In order to promote the success of China’s commodity futures contracts, this paper put forward the policy recommendations to the relevant departments for reference from four aspects, which are the grasp of list timing, consideration of the economic entities’ hedging demand, reduction of transaction costs and establishment of trading activity monitoring system.