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The information flow and market efficiency between the U.S. and Chinese aluminum and copper futures markets

Authors

  • Hung-Gay Fung,

    1. The College of Business Administration & Center for International Studies, University of Missouri-St. Louis, Missouri, and also at Dr. Y.S. Tsiang Professor in Chinese Studies, One University Blvd, St. Louis, Missouri 63121
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  • Qingfeng “Wilson” Liu,

    1. College of Business, James Madison University, MSC 0203, Harrisonburg, Virginia 22807
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  • Yiuman Tse

    Corresponding author
    1. Department of Finance, College of Business, University of Texas-San Antonio, San Antonio, Texas 78249
    • One UTSA Circle, Department of Finance, College of Business, University of Texas at San Antonio, San Antonio, Texas 78249
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  • Liu acknowledges financial support from the College of Business at James Madison University. Tse acknowledges the College of Business at the University of Texas and U.S. Global Investors, Inc. for financial support. The authors thank Cathy Mai, Eric Johnson (the discussant), and the participants at the 20th annual Asia-Pacific Futures Research Symposium in Hong Kong for valuable comments.

Abstract

This study examines the information flow and market efficiency between the metallurgical futures markets of the United States and China over a ten-year span from 1999 to 2009. There were structural breaks in the aluminum and copper futures price series for the New York Mercantile Exchange (NYMEX) and Shanghai Futures Exchange (SHFE) between 2006 and 2008. The New York and Shanghai markets are cointegrated, indicating an equilibrium relationship between the two markets. Trading strategies are implemented to explore the error-correction process. The overall results show that U.S. and Shanghai futures prices are closely related and both markets are comparably efficient on a daily basis. The U.S. market does not appear to be more efficient than the Chinese market in incorporating information into prices. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark

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