Abstract
Steel futures have the function of price discovery and hedging. Steel related enterprises can judge the hedging strategy through the direction of steel futures price volatility, and reasonably avoid the risk brought by price volatility. Therefore, it is particularly important to study steel futures price volatility and its influencing factors. Because steel futures in China have characteristics of peak and rear tail aggregation, the paper constructs Model of GARCH (1,1) to make positive analysis of futures price volatility and its influencing factors of deformed steel bars and hot rolled coils, and the following conclusions have been drawn: (1) The volume and open interest of deformed steel bars have very significant explanatory ability to futures price volatility of deformed steel bars; (2) The volume and open interest of hot rolled coils also have very significant explanatory ability to futures price volatility of hot rolled coils; (3) The sustainable capacity of the price volatility of deformed steel bars and hot rolled coils is relatively small; (4) Iron ore price have no obvious explanatory ability to futures price volatility. Finally, some managerial implications and suggestions are derived from the analysis of the proposed model.
Highlights
The futures market is an important indicator that affects the development of the financial system for any country, and hedging is one of the most important functions of the futures market
By taking the stock market crash in the United States in the 1980s as the dividing point, Schwert (1990) made an empirical analysis on the volatility of securities prices by adopting the ARCH model, the results showed that the volatility range of securities prices after the crash was 2.5 times higher than that before the crash, which proved the existence of asymmetric effect
From the basic statistics of descriptive characteristics of relative volatility time sequence (RT) of deformed steel bars futures price, it can be known that skewness (S) is negative (-0.753400 < 0), indicating that compared with the standard normal distribution, this sequence presents a left-skewed form; kurtosis (K) is positive and greater than 3 (6.260335 > 3) with the characteristic of obvious sharp peak and thick tail
Summary
The futures market is an important indicator that affects the development of the financial system for any country, and hedging is one of the most important functions of the futures market. Liu (2011) concluded from his research that the steel spot price volatility would affect the same direction fluctuation of the steel futures price in the current period, so steel futures have the function of price discovery and hedging in China. Since 2014, due to the slowdown of economic development, steel futures prices in China have been in the stage of downward fluctuations, and China has implemented a loose credit strategy, resulting in a surge in demand for real estate in China at that time, further increasing the demand for steel, leading to upward fluctuations in steel futures prices. This paper mainly studies steel futures of Shanghai Futures Exchange. By studying the price volatility characteristics and influencing factors of steel futures in Shanghai Futures Exchange, this paper provides important theoretical support for studying the price volatility and influencing factors of the steel futures market in China.
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