Covid-19 Shifts in Chinese Commodity Futures Returns and Cointegration

Summary

The study examines liquid commodity futures traded in Chinese markets before and after the onset of Covid-19. It compares empirical return moments and cointegration across products, motivated in part by the relevance of cross-commodity relationships to pairs trading. The analysis considers changes in average returns, volatility, and the number of cointegrated pairs.

After the pandemic began, soybean, corn, corn starch, and iron ore futures had stronger positive changes in average returns than other products. Volatility rose most for silver, petroleum asphalt, and egg futures. The number of cointegrated pairs declined, which the authors associate with structural shifts in commodity demand and supply. These are period comparisons across the studied Chinese futures; the description provides no precise sample dates, effect sizes, or evidence that any observed relationships persisted. A reduction in cointegration may affect candidate pairs, but it does not alone establish a profitable pairs-trading strategy.

Key ideas

• The study compares return moments and cointegration in Chinese commodity futures before and after Covid-19 began.
• Soybean, corn, corn starch, and iron ore futures had comparatively strong positive changes in average returns.
• Volatility increased most for silver, petroleum asphalt, and egg futures.
• The number of cointegrated pairs fell after the pandemic began.
• The authors link the changes in pair relationships to shifts in commodity demand and supply.

Tags

# Effects of Covid-19 Pandemic on Chinese Commodity Futures Markets


# Effects of Covid-19 Pandemic on Chinese Commodity Futures Markets









In this study, empirical moments and the cointegration for all the liquid commodity futures traded in the Chinese futures markets are analyzed for the periods before and after Covid-19, which is important for trading strategies such as pairs trading. The results show that the positive change in the average returns of the products such as soybean, corn, corn starch, and iron ore futures are significantly stronger than other products in the post Covid-19 era, whereas the volatility increased most for silver, petroleum asphalt and egg futures after the pandemic started. The number of cointegrated pairs are reduced after the pandemic indicating the differentiation in returns due to the structural changes caused in the demand and supply conditions across commodities.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.