A Study On Dynamic Correlation Between Commodity Futures Price And The Stock Price Of Listed Companies

In recent years,China's futures market has been expanding in size and the range of futures contracts.There has been listed 46 kinds of commodity futures contracts by the end of 2016,and the trading volume of China's commodity futures market has been the highest in the world for 7 years.With the increase of scale,the role of commodity futures market is becoming more and more important to economic stability.If the price of commodity futures fluctuates violently,it will bring great influence to China's economic development.Now our country is actively promoting the reform of the supply side,which plays an important role in realizing the transformation of China's industrial structure and stabilizing economic growth.But this process does have led to the volatility of commodity futures prices,causing fluctuations in the stock prices of listed companies.So it is of great significance to understand the dynamic relationship between the volatility of commodity futures prices and the stock prices of related companies,which is important to know the feedback between the two markets so as to monitor and guard against market risks.On the top of that,the stock market investors can also make the optimal investment decisions based on changes in the futures market,or develop operational arbitrage strategies when the two markets maintain a stable correlation trend.The current studies on the correlation between commodity futures prices and related stock prices are qualitative researches,which use Granger causality test or the establishment of vector error correction model to prove the existence and direction of the risk spillover between the two markets.However,there are no quantitative correlation coefficient and the trend about it.And in terms of the objects of the studies,the existing researches mostly analyze the correlation between the specific commodity futures price and the price of single stock,or study the correlation between the commodity futures and the stock price index of a certain industry.Because the change of commodity futures price will have different effects on the performance of its upstream and downstream industries,this paper will divide related stocks into upstream and downstream.Then we select representative stocks to make stock price index of upstream and downstream to avoid the heterogeneity of individual stock.Finally,we use DCC-GARCH model to do empirical test and obtain the intuitive time varying coefficients.At the same time,this paper studies the dynamic correlation between fluctuations in copper futures prices and copper stock prices,expecting to provide valuable information for relevant enterprises,financial investors and market regulators.In theory,this paper refers to the popular pricing theory of futures and stock.Combining with the specific factors which impact copper futures prices and the related stock prices,we sum up four transmission mechanism between the futures prices and the relevant stock prices.First,the volatility of commodity futures prices will affect the spot price fluctuations by the price discovery function,which will affect the production costs or sales profits of the listed companies.Second,there is co-movement effect among stocks in the same sector.Third,the stock of funds continue to chase high returns and transfer in the four major categories of asset allocation.We can conclude that the funds between the commodity futures market and the stock market are intertwined to show a certain dynamic correlation.Fourth,investors will expect the operating performance of listed companies according to the changes in futures prices,then they could take action on stock market immediately,so that the correlation between the two markets can be revealed in short time.As for the empirical literature,this paper chooses the Gopper futures prices and the daily closing price of 10 listed enterprises on the upstream and downstream of the copper industry chain from 2007 to 2016.And we have programmed copper upstream and downstream stock price index of the listed companies with reference to the regulation of the SSE 50 Equal Weight.Then the logarithmic yield series of copper futures and copper stock price index is described by descriptive statistics and stationary test and ARCH effect test.By modeling correlation between logarithmic returns under the DCC-GARCH framework,we come to the following conclusions:First,there is a one-way volatility spillover effect between fluctuations in copper futures prices and copper stock prices.The volatility of copper futures prices in previous periods will affect the current volatility of stock prices.This shows that the linkage between futures market and the stock market is deeper,copper enterprises will stabilize operating efficiency and reduce operational risk by hedging in the futures market,which can benefit its stock value.Second,during the whole sample period,the correlation coefficient R_rurf and R_rdrf of the copper stock index price and the futures price are time varying.The dynamic correlation between copper upstream stock price and futures price is stronger than that of downstream.Besides,the correlation between the copper upstream index and futures is more volatile.Third,the correlation significantly reduced when the copper futures price is in its long-term decline channel.At this stage,the dynamic correlation coefficient is less than 0.2.Due to the commodity futures margin mechanism,investors can use commodity futures to build a diversified portfolio in lower costs.