The Efficiency of the Chinese Commodity Futures Markets: Development and Empirical Evidence

TLDR: Feng et al. as discussed by the authors investigated the efficiency of the Chinese metal futures (i.e., copper and aluminum) traded on China's Shanghai Futures Exchange, and argued that China's commodity futures markets are efficient, and that futures prices can be considered as unbiased predictors of future spot prices.

Abstract: This study investigates the efficiency of the Chinese metal futures (i. e. copper and aluminum) traded on China's Shanghai Futures Exchange. First, we thoroughly analyze the development of China's commodity futures markets, which provides a fundamental background. Then we examine the random walk and unbiasedness hypotheses for two metal futures during 1999–2004. Based on the empirical evidence, we argue that China's copper and aluminum futures markets are efficient, and that they aid the process of price discovery because futures prices can be considered as unbiased predictors of future spot prices. We attribute this efficiency to the regulatory changes made in 1999 and the increased financial skills and acumen of the participants in the market. Edited by Xiaoming Feng