Liquidity of China’s agricultural futures market: measurement and cross-market dependence
China Agricultural Economic Review
ISSN: 1756-137X
Article publication date: 14 January 2022
Issue publication date: 22 March 2022
Abstract
Purpose
This paper aims to present the first empirical liquidity measurement of China’s agricultural futures markets and study time-varying liquidity dependence across markets.
Design/methodology/approach
Based on both high- and low-frequency trading data of soybean and corn, this paper evaluates short-term liquidity adjustment in Chinese agricultural futures market measured by liquidity benchmark and long-term liquidity development measured by liquidity proxies.
Findings
By constructing comparisons, the authors identify the seminal paper of Fong, Holden and Trzcinka (2017) as the best low-frequency liquidity proxy in China’s agricultural futures market and capture similar historical patterns of the liquidity in soybean and corn markets. The authors further employ Copula-generalized autoregressive conditional heteroskedasticity models to investigate liquidity dependence between soybean and corn futures markets. Results show that cross-market liquidity dependence tends to be dynamic and asymmetric (in upper versus lower tails). The liquidity dependence becomes stronger when these markets experience negative shocks than positive shocks, indicating a concern on the contagion effect of liquidity risk under negative financial situations.
Originality/value
The findings of this study provide useful information on the dynamic evolution of liquidity pattern and cross-market dependence of fastest-growing agricultural futures in the largest emerging economy.
Keywords
Acknowledgements
The authors acknowledge support from the National Natural Science Foundation of China (Grant No. 72173052; 71803058; 71873050; 71673103).
Citation
Xu, Y., Li, J., Wang, L. and Li, C. (2022), "Liquidity of China’s agricultural futures market: measurement and cross-market dependence", China Agricultural Economic Review, Vol. 14 No. 2, pp. 443-463. https://doi.org/10.1108/CAER-05-2021-0099
Publisher
:Emerald Publishing Limited
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