Spillovers and interdependency across base metals: Evidence from China's futures and spot markets

Abstract

Using the framework of Diebold and Yilmaz (2012, 2014), we examine the spillovers of informational shocks and the connectedness in China's base metals futures and spot markets. We find that base metals tend to generate more total spillovers in the futures market than in the spot market and that individual metals, apart from nickel, have nearly identical directional spillover impacts on or from other base metals in both the futures and spot markets. Copper and zinc act as the pricing centre in both futures and spot markets, where informational innovation is expected to flow from copper and zinc to other metal commodities. According to the dynamic analysis, the US-China trade dispute tends to significantly reduce total spillovers in both the futures and spot markets. We also find that the information transmission channels between base metals in futures and spot markets differ slightly and that the futures market leads the spot market in price discovery.