Empirical Analysis Of Non-ferrous Metals Cross-market Arbitrage

Cross-market arbitrage is the prediction and trading of the price change of the same commodity on different exchanges.The traditional trading method is to establish an import-export equilibrium interval,wait for the price ratio to break through the interval,and then participate in regressive arbitrage.However,as the use of futures by the industry chain enterprise becomes more mature,cross-market arbitrage participation is getting higher and higher,the profits of regressive arbitrage have decreased,and trading opportunities have become increasingly scarce.At present,the main trading range has been expanded,mainly in the equilibrium range of import and export.The traditional identification and transaction methods of non-ferrous metals cross-market arbitrage which in the literature have become slightly outdated.At the same time,trader has also uses more predictive indicators for the identification of cross-market arbitrage opportunities,such as net imports,economic indicators between two markets,and price fluctuations.This article attempts to conduct an empirical analysis of the new identification methods in the current market,and at the same time to quantify the predictive indicators,to find universality and individuality factors to the SHFE/LME price ratio and the SHFE-LME spread,and propose in the Cross-market arbitrage model of trading in the equilibrium range of import and export.In terms of research methods,first,we first use descriptive statistics to deal with the SHFE/LME price ratio and SHFE-LME spread,and understand its fluctuation characteristics.Second,we list factors that may affect the SHFE/LME price ratio and SHFE-LME spread of various non-ferrous metals.Then by stepwise linear regression,we understand something about the effect.Such as the significance of the impact,the positive or negative impact,the degree of impact.We will find universality and individuality factors to the SHFE/LME price ratio and the SHFE-LME spread.Finally,the identification method of cross-market arbitrage opportunities within the import and export equilibrium range will be found,and we will test it through historical data.In terms of research results and conclusions,there are two main aspects.First,after quantitative analysis,this article summarizes the commonalities and personalities of the four major nonferrous metals?For SHFE/LME price ratio transactions,the exchange rate is the main factor and has a significant positive impact.The prediction of the exchange rate trend is the most important for the results of the SHFE/LME price ratio transactions.Among the four major metals,the SHFE/LME price ratio of copper,zinc and lead are mainly affected by exchange rate.SHFE/LME price ratio of aluminum are less affected by exchange rate.For SHFE-LME spread transactions,the impact factors of different metals are different,but they can still be classified into common factors and personality factors.Logistics,supply and demand,and price fluctuations are the three common factors.Net imports have a positive impact on the SHFE-LME spread.The CIF premium has a negative impact;the inventory ratio has a positive impact on the SHFE-LME spread;the LME price has a negative impact.The economic indicators is the main personality factor.The economic indicators between two markets have a negative impact on SHFE-LME spread of copper and zinc,because there are high imports dependence in copper and zinc.The economic indicators between two markets have a positive impact on SHFE-LME spread of aluminum,because there are low imports dependence in aluminum.Second,based on the quantitative results,a crossmarket arbitrage model for trading within the equilibrium range of import and export is proposed.Using a quantified model to quantify the impact factor,we can use the model to trade the SHFE/LME price ratio and SHFE-LME spread,and trade in the import and export equilibrium with a higher probability.We will obtain cross-market arbitrage profits,and can achieve better trading results after screening through the core interval.Trading in the import-export equilibrium range is feasible,which expands the crossmarket arbitrage tradable range.