Effects of Covid-19 Pandemic on Chinese Commodity Futures Markets

TL;DR

This paper analyzes how the Covid-19 pandemic affected Chinese commodity futures markets, revealing changes in returns, volatility, and cointegration patterns that impact trading strategies.

Contribution

It provides an empirical comparison of market dynamics before and after Covid-19, highlighting structural changes in commodity futures markets in China.

Findings

Increased average returns for soybean, corn, and iron ore futures post-Covid-19.

Significant rise in volatility for silver, petroleum asphalt, and eggs after the pandemic.

Reduction in cointegrated pairs indicating market differentiation due to structural shifts.

Abstract

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.