Price Volatility, The Maturity Effect

Journal of Economics and Finance
https://doi.org/10.1007/s12197-019-09497-1
Price Volatility, the Maturity Effect, and Global Oil

Prices: Evidence from Chinese Commodity
Futures Markets
Jing Ao 1 & Jihui Chen 2
# Academy of Economics and Finance 2020
Abstract
We study the maturity effect using 41 major agricultural, industrial, and metal com-
modities traded in three Chinese futures exchanges between 2006 and 2015. After
controlling for seasonality, year and product fixed effects, we find supportive evidence
of the maturity effect in futures contracts for several agricultural products, but not for
metal nor industrial products. To the best of our knowledge, this is the first compre-
hensive study to document the maturity effect of Chinese futures contracts.
Keywords Futures Markets . Price Volatility . Chinese Commodity Futures
JEL Classification G13 . G15 . Q02
1 Introduction
There is an extensive literature on price volatility in futures markets with alternative

explanations. Early research proposes the inventory theory (Working 1942, 1948,
1949), and some studies consider a more general model where equilibrium prices in
the spot and futures markets are simultaneously determined (Stein 1979; Anderson
and Danthine 1983). The seminal work by Samuelson (1965) argues that futures
contracts long before maturity carry greater uncertainty and therefore react weakly
to given information, while the opposite is true for futures contracts close to
maturity, or “the maturity effect.” However, empirical studies on the maturity effect
is inconclusive in various commodity and financial futures markets. While studies
on agricultural products generally find supportive evidence of the maturity effect
(e.g., Koekebakker and Lien 2004; Smith 2005; Frank and Garcia 2011), those on
We thank Hassan Mohammadi and session participants at the 2017 Southern Economic Association Annual
Meetings for helpful comments. The usual caveat applies.
* Jihui Chen
jchen4@ilstu.edu
Extended author information available on the last page of the article

energy and financial products, as well as metals, often do not (e.g., Fama and
French 1988; Bessembinder et al. 1996; Swift 2001; Mu 2007).1
From early 2000s, the international commodity markets have experienced significant
price fluctuations, due to various demand and supply shocks, as well as changes in business,
political, and even environmental cycles (Pop et al. 2013). It is thus important to understand
price volatility of commodities in the ever-interconnected global economies. As a dominant
player, China’s demand for commodities – agriculture, metals, and energy, has had profound
implications for the commodity markets worldwide in recent decades. To date, little
evidence has been documented on the maturity effect in Chinese commodity futures
markets. This study aims to fill the gap.
To address the research question, we assemble a sample consisting of 41 agricultural,
industrial, and metal commodities from three major Chinese exchanges, namely, Zhengzhou
Commodity Exchange (CZCE), Dalian Commodity Exchange (DCE), and Shanghai Fu-
tures Exchange (SHFE) between January 4th, 2006 and December 31st, 2015. Taking into
consideration the rising dependency of the Chinese commodity market on global crude oil,
our estimation analysis controls for the major global crude oil price benchmark (i.e., Europe
Brent Crude Oil daily price). For robustness reasons, we construct four monthly dispersion
measures for price volatility (i.e., logodds ratio, percentage range, Gini, and coefficient of
variation). After controlling for a number of factors including seasonality, recession, and
macroeconomic indices (e.g., GDP growth rate, CPI, and Raw Material Price Index), we
find mixed results among agricultural products, but little evidence of the maturity effect
among metal and industrial products, which is broadly in line with the existing literature that
is often based on commodity futures markets in the developed countries.
Chinese commodity futures market provides an ideal setting for studying the maturity
effect for a number of reasons. First, the sampled commodities are heavily traded in the spot
market and also serve as essential inputs for industrial and manufacturing products, which
are crucial for a developing economy. Second, the sample period is of particular interest, as
it covers periods of both rapid-growth and slowdowns of China’s economy. Third, unlike
those in the developed countries, Chinese futures markets, to date, remain largely domestic
(Zhao 2015). This, coupled with their unique institutional characteristics, allows us to
understand how price volatility in these exchanges may differ from more mature interna-
tional financial markets. Last but not least, Chinese futures markets were already ranked the
largest in the world both in terms of trading volume (SHFE) and notional value (DCE) in
2017.2 As China gradually opens up its financial markets, one can only expect their
growing impact on global commodity trading in the coming years.3,4
Finally, this paper adds to the literature in two aspects. On the one hand, we use new
Chinese data of simultaneously traded contracts, and apply four distinct measures of
price volatility in the analysis. On the other hand, following the literature (Zhang and
1
Previous studies often focus on the linkage between Chinese commodity futures and international financial
markets, in terms of information transmission and market efficiency (Lee et al. 2009; Fung et al. 2013).
2
“What to expect from China's futures market opening up” by Sharnie Wong, Bloomberg Intelligence, July 04,
2018 (https://www.bloomberg.com/professional/blog/expect-chinas-futures-market-opening/).
3
Source: “Chinese traders race to become a growing force in global copper trading markets,” by Evelyn
Cheng, November 16, 2017, CNBC (https://www.cnbc.com/2017/11/16/chinese-traders-a-growing-force-in-
global-copper-trading-markets.html).
4
Source: “China is working to change global commodity trading- to its own benefits.” by Huileng Tan,
June 8, 2018, CNBC (https://www.cnbc.com/2018/06/06/china-is-working-to-change-global-commodities-
trading.html).
Qu 2015; Ahmadi et al. 2016), our analysis incorporates the important role of crude oil
price when examining the maturity effect.
The rest of the paper is organized as follows. Review of related literatures is
presented in the Section 2, the institutional facts are discussed in the Section 3, and
Section 4 introduces the data. We discuss the model and econometric strategy in
Section 5, and the estimation results in Section 6. Finally, Section 7 offers some
concluding remarks.
2 Literature Review
Our paper is related to a vast empirical literature examining price volatility of futures
contracts. Aside from the maturity effect, existing studies have also proposed season-
ality, calendar time, trading session, and inventory effects to explain the observed price
volatility in futures markets (Anderson 1985; Galloway and Kolb 1996; Frank and
Garcia 2011). All, except for the maturity effect, can be broadly viewed as “seasonal.”
Since our paper tests the maturity effect, our discussions below focuses on this
particular strand of the literature.
First, studies on agricultural products generally find supportive evidence of the
maturity effect. For example, Milonas (1986) documents the effect in wheat, soybeans,
soybean meal, soybean oil, Treasury bills, Treasury bonds, copper, gold and silver
futures markets, except for corn. More recently, Chatrath et al. (2002) and Karali and
Thurman (2010) show evidence of the effect in corn and soybean, and lumber futures
markets, respectively. Moreover, Koekebakker and Lien (2004) find the maturity effect
in the U.S. wheat futures market, and so do Daal et al. (2006), who examine foods,
grains and other commodity futures using data from US, Australia, Japan, and Canada.
Furthermore, research based on other international futures markets also find evidence
of the maturity effect for agricultural commodities (e.g., Khoury and Yourougou 1993
on feed barley, feed wheat, rye, oat, flaxseed, canola in Canada; Duong and Kalev 2008
on corn, soybean, soybean meal, soybean oil, feeder cattle, lean hogs, live cattle, pork
bellies, and wheat in U.S., India, China, Japan; Verma and Kumar 2010 on Wheat and
pepper in India).
Second, researchers often find the absence of the maturity effect in metals futures
markets. Unlike agricultural products, metals are less dependent on seasonal supply
variations, but rather heavily rely on economic growth and developments. Thus, one
would expect fluctuations in metal futures prices to be highly correlated with (expected)
macroeconomic performance and business cycle. In addition, the timing and
environmental restrictions of metal production may affect price volatility. For
example, Fama and French (1988) study Aluminum, copper, lead, tin, and zinc in
both the U.S. and U.K., and do not find the maturity effect. Akram (2009) argues that
shocks to real interest rates and to real dollar exchange rates attribute to movements in
metals futures prices in the U.S. and other OECD countries. More recently, studying the
global metals markets, Issler et al. (2014) show that industrial production determines
price variation, due to fixed supply in the short run.
Finally, existing works on financial and energy products appear to have mixed
findings on the maturity effect. Studying the futures market for five currencies (i.e.,
German mark, Swiss franc, British Pond, Canadian dollar and Japanese yen),
Grammatikos and Saunders (1986) find that time-to-maturity has a strong effect on
trading volume, but not on price volatility. Similarly, Bessembinder et al. (1996) finds
no evidence of the maturity effect in the U.S. financial futures markets between 1982
and 1991. In more recent studies, Akin (2003) shows supportive evidence of the effect
in the U.S. futures markets for foreign exchanges, equity indices, and interest rates, and
Kadioglu et al. (2016) also find a positive relationship between volatility and time-to-
maturity in their Turkish data on gold, currency, indices and single stocks futures
contracts.
To date, studies on energy futures usually use the U.S. data. For example, Serletis
(1992) finds supportive evidence of the maturity effect when studying three energy
futures contracts, but notes that the correlation weakens when trading volume is
considered. Similarly, Chevallier and Sévi (2012) show a positive relationship between
price volatility and trading volume in both crude oil (2007-2010) and natural gas (2006-
2010) futures markets. However, Mu (2007) fails to find the maturity effect in the
natural gas futures market during 1997 and 2000. One may speculate that energy
futures prices are highly seasonal, but other factors such as inventory cost, “hedging
pressure” and inventory of substitutes also matter (Pindyck 2001; Doran and Ronn
2008; D’Ecclesia et al. 2014).
In summary, previous studies on the maturity effect often use data from developed
countries, especially for the metals and energy futures markets, and our paper adds to
the literature by providing additional evidence from the largest emerging economy with
unique institutional settings (i.e., China). Also, little has been done to examine the
effect in the industrial commodity futures market; our paper augments the literature
from this perspective as well. It is important to note that our sample spans a 10-year
period when China had experienced rapid growth and economic downturns, which
offers a new perspective in testing the seminal work by Samuelson (1965).
3 Institutional Fact
Compared to those in Europe and the U.S., Chinese commodity futures markets have a
relatively short history. All three major exchanges were established in the early 1990s,
first at the Zhengzhou Commodity Exchange (ZCE) in 1990, then followed by Dalian
Commodity Exchange (DCE) in 1993 and Shanghai Futures Exchange (SHFE) in
1999. In particular, ZCE and DCE mainly trade futures contracts for agricultural
commodities, and SHFE specialize in metals and energy futures contracts.5 These
exchanges operate between 9:30 a.m. and 3:00 p.m. (Beijing time), except for 11:30
a.m. -1:30 p.m. (Fung et al. 2013). Although China has been the world’s largest
commodity importer, its futures markets remains largely domestic.6
Another major feature sets Chinese futures markets apart from others is that they rely
on both price limit and position limit to “curb excessive speculation and prevent the
5
See Appendix A.1 for detailed information on commodities traded on each exchange.
6
As the first step towards internationalization of its financial markets, China only recently granted interna-
tional participants market access to crude oil futures (SHFE) and iron ore futures (DCE) in 2018 (Source:
Source: “China is working to change global commodity trading- to its own benefits.” by Huileng Tan, June 8,
2018, CNBC (https://www.cnbc.com/2018/06/06/china-is-working-to-change-global-commodities-trading.
html).
distortion of spot prices (Fan et al. 2018).” The Chinese government launched these
exchanges to hedge domestic needs and stabilize commodity markets. To better
understand the uniqueness of Chinese exchanges, we in turn compare how they differ
from the U.S.’ major commodity futures markets, namely, Chicago Mercantile Ex-
change (CME) and New York Mercantile Exchange (NYMEX), in terms of price
limits, position limits and delivery process, respectively.
3.1 Price Limits
Price limits refer to exchange-imposed limits on changes of settle prices from the
previous trading day. Therefore, we would expect them to directly affect price fluctu-
ations and margins of futures contracts. Although both the U.S. and Chinese futures
exchanges use prices limits, there are some differences. Taking the CME Group as an
example, it has daily price limits of an absolute dollar amount for commodity futures
contracts. All three Chinese commodity futures exchanges have percentage price limits,
ranging from 3-5%.7 As a result, price limits change much more frequently in the U.S.
exchanges than the Chinese markets. In addition, the CBOE Group would sometimes
expand price limits for selected commodity futures contracts under special circum-
stances.8 However, no such expanded price limits exist in the Chinese commodity
exchanges. In short, price limits are more flexible in the U.S. than in the Chinese
exchanges.9
3.2 Position Limits
Position limits refer to ownership restrictions that traders cannot exceed.10 It is mostly
applicable to group and institutional traders, rather than individual market participants.
Overall, Chinese exchanges have more strict position limits than their U.S. counter-
parts. For example, traders at the SHFE are required to file a report if they hold position
equal to or greater than 80% of the position limit.11 On the contrary, market participants
at the CME may obtain exemption of position limits upon approval, while such
exemptions are unavailable in the Chinese exchanges.12
3.3 Delivery Process
Table 8 lists the products traded on each exchange, with varying delivery rules. First,
depending on the product, delivery months can vary, resulting in different numbers of
futures contracts traded each day. Specifically, on the SHFE, Aluminum and copper
futures contracts are delivered monthly, or up to 12 futures contracts traded daily. In
contrast, up to 11 futures contracts are traded daily for fuel oil, since no delivery occurs
in the month of Spring Festival (i.e., January or February). Similarly, there are up to 10
7
For instance, the price limits in our sample period (Jan. 2006 to Dec. 2005) do not change.
8
For example, the CME Group rules that daily price limits for some agricultural futures are reset every six
month, such as corn futures, soybean futures, and wheat futures.
9
Source: https://www.cmegroup.com/content/dam/cmegroup/rulebook/CME/I/4/4.pdf
10
Source: https://www.investopedia.com/terms/p/positionlimit.asp.
11
Source: https://www.cmegroup.com/content/dam/cmegroup/notices/ser/2018/10/SER-8270.pdfs.
12
Source: https://www.cmegroup.com/market-regulation/position-limits.html.
futures contracts traded daily for rubber, except for February and December. On the
DCE, most agricultural futures contracts (i.e., corn, corn starch, soybean grade 1, and
soybean grade 2) are only traded and delivered in the odd-numbered months (e.g.,
January, March, and so on), except that soybean meal, and soybean oil are also traded
and delivered in December. Furthermore, futures contracts for RBD palm olein, egg,
fiber broad, and block board are traded and delivered monthly. Similarly, futures
contracts for some commodities on the CZCE (i.e., strong gluten wheat, common
wheat, hardy wheat, corn, rape seed oil, white sugar and other agricultural commod-
ities) are traded and delivered only on the odd-numbered months, while others (thermal
coal, glass, metal alloy and other chemical products) are traded and delivered monthly.
Second, all commodities are delivered anytime between a transaction is settled and
the last delivery date indicated on the contract. However, the exact delivery dates differ
across the three Chinese exchanges. In particular, all futures contracts traded on the
DCE are delivered no later than the 13rd trading day of the delivery month, those on
CZCE are delivered no later than the 12th trading day of the delivery month, and those
on the SHFE are no later than the 16th trading day of the delivery month. Furthermore,
all the deliveries are fulfilled at the warehouses designated by their respective
exchanges.
Similar to Chinese exchanges, the CME delivery department administers all aspects
of the physical delivery process for futures contracts involving commodities and
foreign currencies. 13’14 Unlike in China, traders are allowed to use any CME-
approved warehouses. In the subsequent analysis, we explore the maturity effect in a
developing economy (i.e., China) where more restrictions are imposed than those
documented in previous studies (e.g., the U.S.).
3.4 Data
To address the research questions, we have assembled a new dataset consisting of daily
trading information on 41 agricultural, industrial and metal commodities futures contracts
traded on three major Chinese futures Exchanges – Shanghai Futures Exchanges (SHFE),
Dalian Commodity Exchange (DCE) and Zhengzhou Commodity Exchange (CZCE).
The sample period ranges from January 4th, 2006 to December 31st, 2015, covering all
trading days except for weekends and holidays. Daily trading information was extracted
from each exchange’s website, and then assembled into a usable file in Stata.15 For each
futures contract, we collected product name, its daily open, close, high, and low prices, as
well as daily settlement price and that of the preceding business day. In addition, we also
gathered the information on daily trading volume and change in volume (both in terms of
holds and of RMB), and the corresponding delivery dates for each contract.
To clean the data, we removed observations with missing prices or non-trading
record. For each exchange, we constructed four monthly measures of dispersion (i.e.,
logodds ratio, percentage range, Gini and coefficient of variation) based on daily
closing prices, and then collapsed the data at the monthly level. We thus obtained
13
Source: https://www.cmegroup.com/clearing/operations-and-deliveries/deliveries.html.
14
Source: https://www.cmegroup.com/content/dam/cmegroup/rulebook/CBOT/I/7/7.pdf
15
For additional information, visit: http://www.shfe.com.cn/statements/dataview.html?paramid=kx on the
SHFE, http://www.czce.com.cn/portal/jysj/qhjysj/mrhq/A09112001index_1.htm on the CZCE, and
http://www.dce.com.cn/dalianshangpin/xqsj/tjsj26/rtj/rxq/index.html on the DCE, respectively.
one sample for each exchange, with a total of 21 products with 6,901 observations on
the CZCE, 16 products with 9,936 observations on DCE, and 4 products with 5,156
observations on the SHFE, respectively.
Furthermore, we have also collected major Chinese economic indices during the
sample period, namely, GDP growth rate, CPI inflation, Manufacturing Purchasing
Manger Index, and Non-Manufacturing Purchasing Index, and Raw Materials Prices
Index.16 The National Bureau of Statistics of China publishes unadjusted GDP data,
and we used the simple TRAMO-SEATS method to obtain the seasonally adjusted
GDP growth rates (Wang and Wu 2012). These variables were then merged with each
exchange sample based on the trading month.
Finally, to construct instrument variables for trading volume, we gathered the
information on Shanghai Stock Exchange Composite Index17 (SSE Composite Index),
namely, daily trading prices and volume, as well as on one-year Chinese Treasury bill
rate (www.cn.investing.com). These variables were then merged with the main sample.
4 Model
On a given exchange, we estimate the following model

Dispersionitk ¼ β 1 þ β2 *montmi;k−t þ β3 *lnðOil t Þ þ β4 *ln voli;t þ γ*Xt þ δ*Y i
þ θ*Z t þ εitk ð1Þ
where Dispersionitk is the dependent variable, a dispersion measure for the futures
contracts of product i traded in month t with a maturity date in month k. For robustness
reason, we define four monthly dispersion measures (Chen 2015), namely, logodds
ratio (logodds), percentage range (prange), Gini (gini) and coefficient of variation
(cov), based on daily closing prices.18 All four are commonly-used measures in the
literature on price dispersion, and can be used to compare price variations across
different products. The definition of these measures is as follows:
& logodds ratio (logodds): logodds ¼ ln1−ginigini

where gini is the Gini coefficient of
closing prices for a given futures contract with the same delivery date.
& Percentage range (prange): the ratio of the difference between the maximal and
minimal prices to the minimal price for a given futures contract with the same
delivery date.
& Gini (gini): gini ¼ 1 þ N1 þ λN2 2 ∑Ni¼1 ðN þ 1−iÞ*close where close is the closing
price of a futures contract and λ is the mean price in a given futures contract with
the same delivery date.
16
Except for quarterly GDP data, all other indices are reported monthly. Source: National Bureau of Statistics
of China (http://data.stats.gov.cn/english/).
17
Source: https://cn.investing.com/indices/shanghai-composite-historical-data
18
On non-trading days when the information on daily closing prices is unavailable, we would still have daily
settlement prices, which are the same as the previous business day. Our estimation results are also robust to the
dispersion measures based on daily settlement prices; these results are available upon request from the authors.
& Coefficient of variation (cov): the ratio of the standard deviation of closing prices to
their mean in a given futures contract with the same delivery date.
The key variable of interest is month-to-maturity (montmi, k − t), which is defined as the
difference between delivery month k and trading month t.19 To reflect the maturity
effect, we expect β2 to be negative; or increasing volatility as the delivery date nears (as
montmi, k − t decreases). To date, the existing empirical literature has mixed conclusions
for the sampled commodities, and thus our goal is to test the maturity effect using this
new Chinese sample.
Next, given the documented interdependence between commodity futures markets
and global oil market (Du and Hayes 2011; Zhang and Qu 2015; Ahmadi et al. 2016),
equation (1) control for the logarithm of daily European Brent crude oil prices, ln(Oilt),
a major benchmark price for global oil purchases in equation (1).20 As its economy
grows, China has become the world’s largest importer for crude oil, as well as for
commodities (Coates and Luu 2012). Such interdependence has risen exponentially in
recent years, as China continues to recover from the Great Recession. In equation (1),
β3 captures the impact of crude oil prices on the volatility of commodity futures
contracts. If β3 > 0, it indicates that higher global crude oil price leads to greater price
volatility in the commodity futures market; If β3 < 0, then lower global crude oil price is
associated with greater price volatility. In addition, equation (1) controls for trading
volume, or ln(voli, t) (Serletis 1992; Frank and Garcia, 2011; Chevallier and Sévi 2012),
and we expect β4 to be positive.
Vector Xt includes a set of time-variant control variables such as macroeconomics
indices (GDP growth rate and CPI) and one of the economic indices (i.e., Manufactur-
ing Purchasing Manager Index, Non-Manufacturing Purchasing Index, or Raw Mate-
rials Prices Index), and seasonal dummies for the trading day (winter is the reference
group. In addition, a set of product dummies, Yi, and year dummies, Zt, is also included
in equation (1). Finally, εitk denotes the error-term.
Table 1 reports the summary statistics of the sample. ln(Oil) has a mean of 4.373,
ranging from a minimum of 3.329 to a maximum of 4.915. The average seasonally-
adjusted GDP growth rate during the sample period is 4.1%, with a low of -17.2% and
a high of 14.5%, indicating China’s economic booms and downturns between 2006 and
2015.
The lower panel of Table 1 displays the four dispersion measures and other
exchange-specific variables. Across three exchanges, prices of futures contracts are
the most dispersed on the SHFE, while those on the other two exchanges are quite
comparable. For example, the mean of percentage range is 0.063 on the CZCE, 0.078
on the DCE, and 0.118 on the SHFE, and the average Gini is 0.01 on the CZCE, 0.012
on the DCE, and 0.153 on the SHFE, respectively. Interestingly, although the DCE has
the most observations (with 16 products), the trading volume is actually the smallest
among the three, followed by the CZCE (with 21 products); in contrast, the SHFE has
the least observations (with only four products), the trading volume is the highest, or
ln(vol) = 6.289. This trading pattern is consistent with the fact that China has become
19
Recall from Section 3, all Chinese commodity futures contracts are set to be delivered within 12 months, or
TTMi, k − t ≤ 12.
20
Source: The U.S Energy Information Administration (EIA).
the world’s leading consumer of commodities, particularly, energy and industrial

metals. As indicated in Table 8, the four metal and industrial products traded on the
SHFE (aluminum, copper, fuel oil, and natural rubber) have been crucial raw materials
for China’s economic development, industrialization and urbanization over the past
Table 1 Summary statistics
Variable Obs Mean Std. Dev. Min Max
ln(oil) 5067 4.373 0.302 3.329 4.915

gdp 4910 0.041 0.108 -0.172 0.145
mpmi 5070 51.795 4.098 21.200 59.200
nmpmi 4536 56.370 2.463 50.800 62.200
rmipi 5070 55.238 10.015 26.600 75.700
recession 5156 0.208 0.406 0 1
Panel A: CZCE
prange 6901 0.063 0.058 0 0.5417
logodds 6582 −4.851 0.924 −17.424 −2.346
gini 6901 0.010 0.010 0 0.874
cov 6583 0.021 0.018 0 −0.166
ln(vol) 6897 5.712 3.502 0.693 15.564
montm 6901 5.444 3.430 0 11
spring 6901 0.294 0.456 0 1
summer 6901 0.207 0.405 0 1
fall 6901 0.297 0.457 0 1
Panel B: DCE
prange 9936 0.078 0.064 0 0.945
logodds 9744 −4.639 0.754 −18.137 −1.785
gini 9936 0.012 0.010 0 0.136
cov 9916 0.023 0.020 0 0.272
ln(vol) 9292 4.568 4.306 −2.442 15.106
montm 9936 5.517 3.448 0 11
spring 9936 0.273 0.445 0 1
summer 9936 0.229 0.420 0 1
fall 9936 0.268 0.443 0 1
Panel C: SHFE
prange 5152 0.087 0.071 0 0.841
logodds 5049 −4.546 0.768 −9.460 −2.163
gini 5152 0.013 0.021 0 0.214
cov 5052 0.026 0.064 0 1.088
ln(vol) 5152 6.289 3.104 0.693 14.307
montm 5152 5.438 3.425 0 11
spring 5152 0.253 0.435 0 1
summer 5152 0.250 0.433 0 1
fall 5152 0.247 0.431 0 1
three decades. To date, China has a relatively modest impact on agricultural commodity
markets, although it may be changing in the near future due to rising food demand and
an aging population (Coates and Luu 2012).
In Figs. 1, 2 and 3, we plot daily closing prices for selected products on each
exchange, with varying price levels and fluctuation patterns.21 In Fig. 1, for example,
three industrial products (PTA, methanol, and thermal coal) traded on the CZCE follow
a similar downward trend over the same time period, indicating a reduced demand in
recent years. In particular, we observe a sharp decline in prices for PTA during the global
great recession. In contrast, prices for agricultural commodities (cotton, indica rice,
rapeseed, and indica rice new) actually rise steadily following the great recession, driven
by a combination of global and macroeconomic factors including fast-growing demand
from developing countries, and only began to drop in recent years (Tothova 2011).
In Fig. 2, we observe a drop in prices during the great recession in (a) through (f),
with relatively large magnitudes among soybean-related products. However, all agri-
cultural products rebound in prices immediately following the great recession, although
the opposite is observed in PVC (an industrial product) prices, which is consistent with
what we observe in Fig. 1. Around 2014, all agricultural products display a declining
prices, the same trend as shown in Fig. 1.
In Fig. 3, the metal and industrial products traded on the SHFE generally show price
drops during the great recession, as expected, and rebound in the following years before
trending downwards around 2012, largely due to recent economic slowdowns from
emerging markets, particularly China.22
Overall, these figures show considerable volatilities over the 10-year sample period
across all three commodity types, which we will formally evaluate in the next section.
4.1 Empirical Analysis
Before turning to the estimation results, it is important to note that ln(voli, t) may be
endogenous due to a likely reversal causality between price volatility and trading
volume. One may speculate that increased price fluctuation might generate higher
trading volume. Alternatively, ln(voli, t) may be correlated with other unobserved
market conditions that might affect prices of a futures contract. Following the literature
(Martell and Wolf 1987; Malliaris and Urrutia 1991), we have used a set of instrument
variables for ln(voli, t), which include trading volume in Shanghai Stock Market, the
logarithm of consumer price index, the logarithm of producer price index, one-year
treasury bill rate, and economic indices (Manufacturing Purchasing Manager Index,
Non-Manufacturing Purchasing Index, or Raw Materials Prices Index), depending on
model specifications for each exchange.
To account for the potential endogeneity of trading volume, ln(voli, t), we employ the
two-step feasible efficient GMM (EGMM) estimation method in the subsequent
analyses, which uses exogenous variables as instruments to form moment conditions.23
21
Depending on the approved timing of listing by the China Securities Regulatory Commission (CSRC),
some products may have a shorter trading period than others in the sample.
22
Source: “Global groups pay a heavy price for China’s slowdown,” by Sarah Gordon, January 19, 2016,
Financial Times (https://www.ft.com/content/75f1f276-bdda-11e5-846f-79b0e3d20eaf).
23
Cavalcanti et al. (2015) apply the GMM estimation method to take into consideration possible endogeneity
in the regression model when studying the impact of commodity price volatility on economic growth.
PTA Cotton Early Rice

10 10
10
9.5 9.5
9.5
9 9
9
8.5 8.5
8.5
8 8
8
7.5 7.5 7.5
3
6
6
6
00
01
01
01
01
00
00
01
01
01
01
00
00
01
01
n2
n2
n2
n2
n2
n2
n2
n2
n2
n2
n2
l2
l2
l2
l2
ja
ja
ja
ja
ja
ju
ju
ju
ju
ja
ja
ja
ja
ja
ja
01
01
01
01
01
01
01
01
01
01
01
01
01
01
01
trading date trading date trading date
(a) (b) (c)
Methanol Thermal Coal Rapeseed Oil

10 10 10
9.5
9.5 9.5
9
8.5
9 9
8
8.5 7.5 8.5
8 8
7.5 7.5
3
5
13
6
1
00
00
00
01
01
01
01
01
01
01
01
01
01
01
01
20
n2
n2
n2
n2
n2
n2
n2
r2
l2
n2
l2
l2
l2
l2
l2
ju
oc
ap
ja
ja
ja
ja
ja
ja
ja
ja
ju
ju
ju
ju
ju
01
01
01
01
01
01
01
01
01
01
01
01
01
01
01
01
(d) (e) (f)
Early Rice (New)

10
9.5
8.5
7.5
2
5
3
6
01
01
01
01
01
01
01
01
l2
l2
l2
l2
n2
n2
n2
n2
ju
ju
ju
ju
ja
ja
ja
ja
01
01
01
01
01
01
01
01
trading date
(g)
Fig. 1 Daily close prices on the CZCE, by product
The EGMM method generates an estimator with an optimal weighting matrix that
minimizes its asymptotic variance. In the first step, we obtain an estimate of the
asymptotic variance matrix of the moment conditions; in the second step, we compute
the optimal weighting matrix, which is simply the inverse of the asymptotic covariance
matrix obtained from the first step, in the GMM objective function. The resulting
estimator from this step is both consistent and efficient (Baum et al. 2007).
The estimation results for each exchange are presented in Tables 2, 3 and 4, respec-
tively. For robustness reasons, in each table, Models (1) through (3) use percent range
(prange) of daily closing prices as the dependent variables, Models (4) through (6) use the
logodds ratio (logodds), Models (7) through (9) use Gini (gini), and Models (10) through
(12) use coefficient of variation (cov). For all 12 model specifications, we report the p-
value from the test of overidentifying restrictions, or Hansen’s J-test. All test results are
greater than the 10% significance level, indicating that our instrument set is appropriate.
In addition, we also report the estimates for the key variable of interest, montm, for each
product (sorted by type) in Tables 5, 6, and 7, and identify whether or not each supports the
maturity effect. In the following discussion, we first report the results for the key variable of
interest, montm, for each exchange, before moving onto the estimates for other variables.
As we show in Table 5, montm is negative only for 5 (cotton, rape oil, rapeseed
meal, rapeseed oil, and sugar) out of a total of 14 agricultural products on the CZCE,24
24
Note that we are rather conservative when drawing these conclusions, as we compare the results from all 12
model specifications.
Corn PVC Soybean Grade1

9.5
9.5 9.5
9
9 9
8.5
8.5 8.5
8
8 8
7.5
7.5 7.5
6
6
00
00
01
01
01
01
00
00
01
01
01
01
00
01
01
01
01
n2
n2
n2
n2
n2
n2
n2
n2
n2
n2
n2
n2
l2
n2
l2
n2
l2
ja
ja
ja
ja
ja
ja
ju
ju
ju
ja
ja
ja
ja
ja
ja
ja
ja
01
01
01
01
01
01
01
01
01
01
01
01
01
01
01
01
01
(a) (b) (c)
Soybean Oil Soybean Meal

Soybean Grade2
9.5
9.5 9.5
9
9 9
8.5 8.5
8.5
8 8 8
7.5 7.5 7.5
6
6
6
6
00
00
01
01
01
01
00
00
01
01
01
01
00
00
01
01
01
01
n2
n2
n2
n2
n2
n2
n2
n2
n2
n2
n2
n2
n2
n2
n2
n2
n2
n2
ja
ja
ja
ja
ja
ja
ja
ja
ja
ja
ja
ja
ja
ja
ja
ja
ja
ja
01
01
01
01
01
01
01
01
01
01
01
01
01
01
01
01
01
01
(d) (e) (f)
Iron Ore Egg

9.5 9.5
8.5 9
7.5 8.5
7.5
4
6
01
01
01
01
01
01
01
01
01
01
n2
l2
n2
l2
n2
n2
l2
n2
l2
n2
ju
ju
ju
ju
ja
ja
ja
ja
ja
ja
01
01
01
01
01
01
01
01
01
01
trading date trading date
(g) (h)
Fig. 2 Daily close prices on the DCE, by product
(a) (b)
(c) (d)
Fig. 3 Daily close prices on the SHEF, by product

indicating limited support for the maturity effect, which departs from the existing
literature. This may be, in part, attributable to more restricted trading rules enforced
at the Chinese futures exchange than those documented in the literature.25 Turning to
industrial commodities, we find little supportive evidence, except for one product
(Thermal coal). Finally, we have mixed results for metals, with Ferro-silicon alloy
supporting the maturity effect and Silicon-manganese alloy not.
On the DCE, as indicated in Table 6, we find supportive evidence of the
maturity effect among agricultural products (6 out of 8). Among industrial prod-
ucts, block board, Polyethylene (LLDPE), and PVC consistently support the
maturity effect across all 12 model specifications, but the remaining products
may or may not, depending on the dispersion measure. Furthermore, iron ore,
the world’s only futures contract with physical delivery, does not show the
maturity effect,26 which confirms the conclusion reported by Duong and Kalev
(2008), who study futures contracts from the U.S., India, China, and Japan during
an earlier time period (January 1996 to October 2003).
On the SHFE, in Table 7, none of the four commodity futures contracts support the
maturity effect, which are consistent with the findings in previous studies. For example,
Galloway and Kolb (1996) do not find any in their U.S. data over a different time period.
More recently, Daal et al. (2006) also fail to find evidence of the effect using an
international sample (i.e., the US, Australia, Japan, and Canada) that spans 40 years from
1960 to 2000.
Overall, the magnitudes in the estimates for montm are the largest when the
volatility is measured by logodds (Models 4 through 6), followed by prange
(Models 1 through 3), and become quite small when measured by either gini or
cov (Models 7 through 12).
Next, turning to other variables, the estimates for Brent oil prices are
negative and largely statistically significant in Tables 2 and 3, indicating that
lower oil prices leads to greater price volatility in commodity futures.27 This
finding is consistent with previous studies (e.g., Zhang and Qu 2015) that oil
prices are essential to futures prices for commodities that require energy-
intensive inputs, for example, and thus would play a crucial role in determining
commodity futures prices, at least to some extent. Furthermore, existing litera-
ture has established an increased interdependence between crude oil and com-
modity markets, owing to rising ethanol production in recent years (Du and
Hayes 2011). Our analysis also provides some evidence on the relationship
between the two using the data from the world’s largest oil importer.
As expected, higher trading volume leads to greater price volatility (except for
Table 3), which is consistent with previous studies (Bessembinder and Seguin 1993;
Wang and Yau 2000). Following the literature, our model also controls for the
seasonality effect and shows some evidence of greater price volatility for futures that
expire during summer months, compared to those expiring in the winter, particularly in
Table 2. This finding is in line with the previous literature that concludes robust
25
Refer to Chan et al. (2004) for a discussion on the effects of China’s regulations on the futures markets.
26
Source: “Dalian exchange going global,” by Xiaomin Zhang, February 28, 2017, China Daily (http://www.
chinadaily.com.cn/business/2017-02/28/content_28371376.htm).
27
The estimates for lnbrent appear to have mixed signs in Table 4, but it is negative and statistically significant
in Model (4).
Table 2 Two-step feasible efficient GMM (EGMM) Estimation Results: Zhengzhou Commodity Exchange
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
prange prange prange logodds logodds logodds gini gini gini cov cov cov
ln(oil) −0.041** −0.032 −0.034 −0.278 −0.228 −0.273 −0.006* −0.005 −0.005 −0.012** −0.010 −0.011
(0.020) (0.023) (0.023) (0.263) (0.302) (0.323) (0.003) (0.004) (0.004) (0.006) (0.007) (0.007)
montm −0.000 0.000 0.000 −0.004 0.001 0.003 −0.000 −0.000 −0.000 −0.000 −0.000 −0.000
(0.001) (0.002) (0.002) (0.020) (0.022) (0.022) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
ln(vol) 0.053*** 0.064*** 0.062*** 0.744*** 0.839*** 0.857*** 0.008*** 0.010*** 0.010*** 0.016*** 0.018*** 0.018***
(0.020) (0.024) (0.022) (0.271) (0.307) (0.307) (0.003) (0.004) (0.004) (0.006) (0.007) (0.006)
gdp 0.013 0.008 0.011 0.068 0.029 0.081 0.002 0.001 0.002 0.005 0.003 0.004
(0.023) (0.028) (0.027) (0.340) (0.380) (0.394) (0.004) (0.004) (0.004) (0.007) (0.008) (0.008)
ln(mpmi) −0.039 −0.366 −0.006 −0.011
(0.024) (0.328) (0.004) (0.007)
ln(nmpmi) −0.173 −1.350 −0.027 −0.054
(0.116) (1.521) (0.019) (0.034)
ln(rmipi) −0.015 0.020 −0.002 −0.003
(0.020) (0.265) (0.003) (0.006)
spring 0.044** 0.053** 0.052** 0.610** 0.689** 0.704*** 0.007** 0.008** 0.008** 0.013** 0.015** 0.015***
(0.018) (0.022) (0.020) (0.238) (0.269) (0.270) (0.003) (0.003) (0.003) (0.005) (0.006) (0.006)
summer 0.130*** 0.158*** 0.153*** 1.881*** 2.124*** 2.162*** 0.021*** 0.025*** 0.024*** 0.039*** 0.045*** 0.045***
(0.049) (0.060) (0.056) (0.679) (0.769) (0.770) (0.008) (0.010) (0.009) (0.015) (0.017) (0.016)
fall 0.038** 0.047** 0.045** 0.546** 0.621** 0.632** 0.006** 0.007** 0.007** 0.011** 0.013** 0.013**
(0.017) (0.020) (0.019) (0.232) (0.262) (0.264) (0.003) (0.003) (0.003) (0.005) (0.006) (0.006)
Constant 0.078 0.514 −0.097 −6.437** −3.283 −8.658*** 0.009 0.079 −0.018 0.023 0.170 −0.029
(0.201) (0.489) (0.184) (2.637) (6.263) (2.454) (0.032) (0.078) (0.029) (0.060) (0.140) (0.053)
Table 2 (continued)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
Observations 4,804 4,808 4,804 4,659 4,663 4,659 4,804 4,808 4,804 4,661 4,665 4,661
P-value Hansen test 0.500 0.585 0.584 0.399 0.433 0.601 0.645 0.698 0.702 0.686 0.642 0.717
All models include product and year dummy variables. We use a set of instrument variables for ln(vol), including the percentage change in daily price of Shanghai Stock Exchange
Composite Index (SSE Composite Index), the log of daily trading volume at the SSE Composite Index, the log of CPI, the log of PPI, and the percentage change in daily price of 1-year
Chinese treasury bond for all models. In addition, the changes in the log of two economic indices (Manufacturing Purchasing Manager Index, Non-Manufacturing Purchasing Index, or
Raw Materials Prices Index) are also used as instruments, depending on model specifications. For example, in models (1), (4), (7), and (11), the changes in the log of Non-
Manufacturing Purchasing Index and Raw Materials Prices Index are used, and so on. Robust standard errors in parentheses
***p < 0.01, **p < 0.05, *p < 0.1
Table 3 Two-step feasible efficient GMM (EGMM) Estimation Results: Dalian Commodity Exchange
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
ln(oil) −0.047*** −0.041*** −0.032*** −0.166 −0.091 −0.056 −0.006*** −0.005*** −0.004** −0.011*** −0.009*** −0.007**
(0.012) (0.010) (0.012) (0.174) (0.124) (0.180) (0.002) (0.002) (0.002) (0.003) (0.003) (0.003)
montm −0.003*** −0.003*** −0.003*** −0.029*** −0.033*** −0.031*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001***
(0.001) (0.000) (0.001) (0.010) (0.007) (0.009) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
ln(vol) 0.017 0.007 0.014 0.360* 0.244* 0.328* 0.003 0.002 0.003 0.005 0.002 0.004
(0.011) (0.008) (0.011) (0.201) (0.141) (0.186) (0.002) (0.001) (0.002) (0.003) (0.003) (0.003)
gdp 0.002 −0.002 −0.003 −0.056 −0.097 −0.094 −0.001 −0.002 −0.002 −0.002 −0.003* −0.004
(0.009) (0.006) (0.008) (0.170) (0.120) (0.159) (0.001) (0.001) (0.001) (0.002) (0.002) (0.002)
ln(mpmi) −0.081*** −0.848*** −0.013*** −0.025***
(0.008) (0.146) (0.001) (0.002)
ln(nmpmi) −0.234*** −2.711*** −0.036*** −0.070***
(0.037) (0.564) (0.006) (0.011)
ln(rmipi) −0.048*** −0.413*** −0.007*** −0.013***
(0.009) (0.114) (0.001) (0.002)
spring 0.003 0.003 0.003 0.035 0.036 0.039 0.000 0.000 0.001 0.001 0.001 0.001
(0.003) (0.002) (0.003) (0.051) (0.037) (0.047) (0.000) (0.000) (0.000) (0.001) (0.001) (0.001)
summer 0.044 0.021 0.038 0.918* 0.643* 0.840* 0.007* 0.004 0.007 0.012 0.006 0.011
(0.027) (0.021) (0.026) (0.498) (0.353) (0.461) (0.004) (0.003) (0.004) (0.008) (0.006) (0.007)
fall −0.003 −0.001 −0.002 −0.058 −0.021 −0.056 −0.000 −0.000 −0.000 −0.001 −0.000 −0.001
(0.003) (0.002) (0.003) (0.060) (0.039) (0.055) (0.001) (0.000) (0.000) (0.001) (0.001) (0.001)
Constant 0.572*** 1.190*** 0.392*** −1.599 6.125** −3.615** 0.083*** 0.176*** 0.054*** 0.165*** 0.340*** 0.106***
(0.107) (0.175) (0.091) (1.757) (2.600) (1.415) (0.017) (0.029) (0.015) (0.030) (0.053) (0.025)
Table 3 (continued)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
Observations 7490 7189 7490 7477 7176 7477 7490 7189 7490 7488 7187 7488
All models include product and year dummy variables. We use a set of instrument variables for ln(vol), including the log of daily trading volume at the Shanghai Stock Exchange
Composite Index (SSE Composite Index), the change in the log of CPI, the change in the log of PPI, and the percentage change in daily price of 1-year Chinese treasury bond for all
models. Robust standard errors in parentheses
***p < 0.01, **p < 0.05, *p < 0.1
Table 4 Two-step feasible efficient GMM (EGMM) Estimation Results: Shanghai Futures Exchange
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
ln(oil) −0.068 −0.067 −0.044 −0.197 −0.198 0.027 −0.008 −0.007 −0.004 −0.016 −0.014 −0.008
(0.045) (0.044) (0.040) (0.446) (0.473) (0.425) (0.007) (0.007) (0.006) (0.012) (0.013) (0.012)
montm 0.054** 0.056** 0.044** 0.548** 0.622** 0.485** 0.008** 0.008** 0.006** 0.014** 0.017* 0.013**
(0.023) (0.028) (0.021) (0.239) (0.316) (0.232) (0.003) (0.004) (0.003) (0.006) (0.008) (0.006)
ln(vol) 0.121** 0.126** 0.100** 1.203** 1.370** 1.068** 0.018** 0.019** 0.014** 0.032** 0.037** 0.028**
(0.051) (0.061) (0.045) (0.517) (0.685) (0.503) (0.008) (0.009) (0.007) (0.014) (0.018) (0.013)
gdp 0.038 0.029 0.019 0.044 0.013 −0.119 0.004 0.003 0.001 0.010 0.008 0.005
(0.057) (0.059) (0.048) (0.577) (0.658) (0.533) (0.008) (0.009) (0.007) (0.016) (0.018) (0.015)
ln(mpmi) −0.132*** −1.095** −0.021*** −0.039***
(0.047) (0.477) (0.007) (0.013)
ln(nmpmi) −0.179 −0.885 −0.027 −0.043
(0.250) (2.816) (0.038) (0.077)
ln(rmipi) −0.075** −0.617* −0.012** −0.021**
(0.032) (0.350) (0.005) (0.010)
spring −0.001 −0.006 −0.003 0.036 −0.015 0.016 0.000 −0.000 0.000 0.001 −0.001 −0.000
(0.015) (0.015) (0.012) (0.148) (0.166) (0.134) (0.002) (0.002) (0.002) (0.004) (0.005) (0.004)
summer −0.013 −0.014 −0.013 −0.116 −0.131 −0.119 −0.002 −0.002 −0.002 −0.003 −0.004 −0.004
(0.017) (0.017) (0.014) (0.169) (0.189) (0.154) (0.002) (0.003) (0.002) (0.005) (0.005) (0.004)
fall 0.002 0.007 0.005 −0.039 −0.014 −0.016 0.001 0.001 0.001 0.001 0.002 0.001
(0.017) (0.017) (0.014) (0.172) (0.191) (0.156) (0.002) (0.003) (0.002) (0.005) (0.005) (0.004)
Constant −0.254 −0.104 −0.392 −11.011* −13.257 −12.609** −0.037 −0.026 −0.058 −0.060 −0.088 −0.132
(0.601) (1.428) (0.514) (6.279) (16.208) (5.806) (0.089) (0.216) (0.074) (0.167) (0.437) (0.154)
Table 4 (continued)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
Observations 3992 3996 3992 3942 3946 3942 3992 3996 3992 3944 3948 3944
All models include product and year dummy variables. We use a set of instrument variables for ln(vol), including the percentage change in daily price of Shanghai Stock Exchange
Composite Index (SSE Composite Index), the log of daily trading volume at the SSE Composite Index, the log of CPI, the log of PPI, and the percentage change in daily price of 1-year
Chinese treasury bond for all models. In addition, the changes in the log of two economic indices (Manufacturing Purchasing Manager Index, Non-Manufacturing Purchasing Index, or
Raw Materials Prices Index) are also used as instruments, depending on model specifications. For example, in models (1), (4), (7), and (11), the changes in the log of Non-
Manufacturing Purchasing Index and Raw Materials Prices Index are used, and so on. Robust standard errors in parentheses
***p < 0.01, **p < 0.05, *p < 0.1
Table 5 Estimates of the key variable of interest (by product) at CZE: montm
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) Support
range range range logodds logodds logodds Gini gini gini cov cov cov (Y/N)
Agricultural
Common wheat −0.000 0.000 0.000 −0.004 0.001 0.003 −0.000 −0.000 −0.000 −0.000 −0.000 −0.000 N
(wheat pm)
(0.001) (0.002) (0.002) (0.020) (0.022) (0.022) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Cotton −0.129*** −0.151*** −0.147*** −1.950*** −2.133*** −2.172*** −0.021*** −0.024*** −0.023*** −0.038*** −0.042*** −0.042*** Y
(0.040) (0.049) (0.046) (0.540) (0.611) (0.613) (0.006) (0.008) (0.007) (0.012) (0.013) (0.013)
Hardy wheat 0.051 0.069 0.066 0.575 0.721 0.746 0.007 0.010 0.010 0.013 0.017 0.017 N
(0.048) (0.057) (0.054) (0.712) (0.794) (0.806) (0.008) (0.009) (0.009) (0.015) (0.017) (0.017)
Indica rice 0.050 0.069 0.066 0.521 0.687 0.722 0.008 0.011 0.010 0.016 0.020 0.020 N
(0.046) (0.055) (0.052) (0.711) (0.792) (0.801) (0.007) (0.009) (0.008) (0.015) (0.017) (0.016)
Indica rice (new) −0.021 −0.026 −0.025 −0.298 −0.339 −0.354 −0.004 −0.004 −0.004 −0.006 −0.007 −0.007 N
(0.016) (0.019) (0.018) (0.224) (0.252) (0.257) (0.003) (0.003) (0.003) (0.005) (0.005) (0.005)
Japonica rice 0.056 0.080 0.076 0.607 0.812 0.852 0.009 0.012 0.012 0.017 0.022 0.022 N
(0.042) (0.051) (0.048) (0.591) (0.667) (0.670) (0.007) (0.008) (0.008) (0.013) (0.015) (0.014)
Late indica rice 0.126** 0.158** 0.152** 1.539* 1.820* 1.872* 0.020** 0.025** 0.024** 0.039** 0.045** 0.046** N
(0.060) (0.074) (0.068) (0.861) (0.968) (0.971) (0.010) (0.012) (0.011) (0.018) (0.021) (0.020)
Rape oil −0.024** −0.025** −0.025** −0.427*** −0.440*** −0.441** −0.004** −0.004** −0.004** −0.008** −0.008** −0.008** Y
(0.011) (0.012) (0.012) (0.149) (0.167) (0.172) (0.002) (0.002) (0.002) (0.003) (0.004) (0.004)
Rapeseed 0.040 0.055 0.052 0.219 0.335 0.347 0.006 0.009 0.008 0.012 0.015 0.015 N
(0.029) (0.036) (0.034) (0.419) (0.470) (0.474) (0.005) (0.006) (0.005) (0.009) (0.010) (0.010)
Rapeseed meal −0.191** −0.237** −0.228** −2.691** −3.067** −3.137** −0.031** −0.037** −0.036** −0.056** −0.065** −0.065** Y
(0.081) (0.099) (0.092) (1.089) (1.232) (1.235) (0.013) (0.016) (0.015) (0.024) (0.027) (0.026)
Rapeseed oil −0.063** −0.073** −0.071** −1.031*** −1.128*** −1.147*** −0.010** −0.012** −0.011** −0.020** −0.022** −0.023** Y
(0.025) (0.030) (0.029) (0.381) (0.429) (0.436) (0.004) (0.005) (0.005) (0.008) (0.009) (0.009)
Sugar −0.141** −0.176** −0.169** −2.056** −2.347** −2.405** −0.022** −0.027** −0.026** −0.041** −0.048** −0.048** Y
Table 5 (continued)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) Support
range range range logodds logodds logodds Gini gini gini cov cov cov (Y/N)
(0.062) (0.076) (0.070) (0.840) (0.950) (0.952) (0.010) (0.012) (0.011) (0.018) (0.021) (0.020)
Strong gluten −0.022 −0.020 −0.020 −0.770*** −0.760*** −0.758*** −0.004 −0.003 −0.004 −0.009* −0.008* −0.008* N
wheat new
(wheat wh)
(0.015) (0.018) (0.017) (0.211) (0.236) (0.242) (0.002) (0.003) (0.003) (0.005) (0.005) (0.005)
Strong gluten 0.138** 0.175** 0.168** 1.621* 1.938* 2.001* 0.022** 0.028** 0.027** 0.043** 0.051** 0.051** N
wheat
(wheat ws)
(0.066) (0.081) (0.075) (0.913) (1.033) (1.035) (0.011) (0.013) (0.012) (0.020) (0.022) (0.022)
Industrial
Glass 0.040 0.054 0.051 0.189 0.287 0.312 0.006 0.009 0.008 0.009 0.012 0.012 N
(0.028) (0.034) (0.032) (0.348) (0.391) (0.395) (0.005) (0.005) (0.005) (0.007) (0.008) (0.008)
Methanol 0.056 0.079 0.075 −0.163 0.030 0.079 0.009 0.012 0.011 0.013 0.018 0.018 N
(0.048) (0.059) (0.055) (0.701) (0.781) (0.786) (0.008) (0.009) (0.009) (0.014) (0.016) (0.016)
Methanol (new) 0.046* 0.059* 0.057* 0.486 0.566 0.582* 0.008* 0.010* 0.009* 0.012* 0.014* 0.014* N
(0.027) (0.033) (0.031) (0.306) (0.346) (0.351) (0.004) (0.005) (0.005) (0.007) (0.008) (0.008)
PTA −0.056 −0.070 −0.067 −0.799 −0.898 −0.918 −0.009 −0.011 −0.011 −0.015 −0.017 −0.018 N
(0.039) (0.047) (0.045) (0.536) (0.601) (0.614) (0.006) (0.008) (0.007) (0.012) (0.013) (0.013)
Thermal coal −0.075*** −0.090*** −0.087*** −1.128*** −1.247*** −1.272*** −0.011** −0.013** −0.012** −0.019** −0.022** −0.022** Y
(0.028) (0.034) (0.032) (0.379) (0.429) (0.430) (0.005) (0.006) (0.005) (0.008) (0.009) (0.009)
Metal
Ferro-silicon alloy −0.072*** −0.078*** −0.077*** −1.202*** −1.251*** −1.259*** −0.011*** −0.012*** −0.012*** −0.021*** −0.022*** −0.022*** Y
(ferro alloy sf)
(0.016) (0.019) (0.018) (0.222) (0.249) (0.253) (0.003) (0.003) (0.003) (0.005) (0.005) (0.005)
Silicon-manganese 0.019 0.028 0.027 −0.070 0.004 0.009 0.003 0.005 0.005 0.006 0.007 0.008 N
alloy (ferro alloy sm)
(0.023) (0.028) (0.026) (0.348) (0.382) (0.387) (0.004) (0.004) (0.004) (0.007) (0.008) (0.008)
Table 6 Estimates of the key variable of interest (by product) at DCE: montm
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) Support
Product prange prange prange logodds logodds logodds gini gini gini cov cov cov (Y/N)
Agricultural
Corn −0.142*** −0.104*** −0.132*** −2.492*** −2.023*** −2.364*** −0.022*** −0.017*** −0.021*** −0.039*** −0.029*** −0.036*** Y
(0.045) (0.033) (0.043) (0.813) (0.541) (0.752) (0.007) (0.005) (0.007) (0.012) (0.010) (0.012)
Corn starch −0.069** −0.053** −0.064** −1.256** −1.054*** −1.197*** −0.011** −0.009** −0.010** −0.019** −0.015** −0.018** Y
(0.029) (0.022) (0.027) (0.498) (0.346) (0.458) (0.005) (0.004) (0.004) (0.008) (0.007) (0.008)
Egg −0.048*** −0.035*** −0.044*** −0.706** −0.556*** −0.663** −0.007*** −0.006*** −0.007*** −0.013*** −0.010*** −0.012*** Y
(0.017) (0.013) (0.016) (0.300) (0.209) (0.277) (0.003) (0.002) (0.003) (0.005) (0.004) (0.004)
RBD palm olien −0.039*** −0.033*** −0.037*** −0.479*** −0.406*** −0.458*** −0.006*** −0.005*** −0.006*** −0.010*** −0.009*** −0.010*** Y
(0.010) (0.008) (0.009) (0.177) (0.124) (0.163) (0.002) (0.001) (0.002) (0.003) (0.002) (0.003)
Soybean grade1 −0.074** −0.044 −0.065* −1.314** −0.986** −1.212** −0.011** −0.008* −0.010* −0.020** −0.012 −0.018* N
(0.036) (0.028) (0.034) (0.651) (0.466) (0.602) (0.006) (0.005) (0.006) (0.010) (0.008) (0.009)
Soybean grade2 −0.021 −0.036** −0.025 0.025 −0.149 −0.029 −0.002 −0.004* −0.003 −0.006 −0.010** −0.007 N
(0.020) (0.017) (0.019) (0.362) (0.264) (0.335) (0.003) (0.003) (0.003) (0.006) (0.005) (0.005)
Soybean meal −0.095** −0.056* −0.085** −1.628** −1.180** −1.505** −0.015** −0.009* −0.013** −0.025** −0.015 −0.023** Y
(0.042) (0.033) (0.040) (0.770) (0.549) (0.712) (0.007) (0.005) (0.007) (0.012) (0.010) (0.011)
Soybean oil −0.073*** −0.050** −0.067*** −1.121** −0.853*** −1.050** −0.011*** −0.008** −0.011*** −0.020*** −0.014** −0.019*** Y
(0.026) (0.020) (0.024) (0.464) (0.331) (0.429) (0.004) (0.003) (0.004) (0.007) (0.006) (0.007)
Industrial
Block board −0.003*** −0.003*** −0.003*** −0.029*** −0.033*** −0.031*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** −0.001*** Y
(0.001) (0.000) (0.001) (0.010) (0.007) (0.009) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Coke −0.018** −0.015** −0.017** −0.177 −0.144 −0.166 −0.002* −0.002* −0.002* −0.004* −0.003* −0.004* N
(0.008) (0.006) (0.008) (0.143) (0.101) (0.131) (0.001) (0.001) (0.001) (0.002) (0.002) (0.002)
Coking coal −0.015* −0.014** −0.015* −0.074 −0.060 −0.070 −0.002 −0.002 −0.002 −0.003 −0.003* −0.003 N
(0.009) (0.006) (0.008) (0.154) (0.108) (0.141) (0.001) (0.001) (0.001) (0.002) (0.002) (0.002)
Table 6 (continued)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) Support
Fiber board 0.024* 0.020* 0.023* 0.288 0.223 0.269 0.003 0.003 0.003 0.006* 0.005 0.006 N
(0.013) (0.011) (0.012) (0.199) (0.142) (0.184) (0.002) (0.002) (0.002) (0.004) (0.003) (0.004)
Polyethylene (LLDPE) −0.040*** −0.032*** −0.038*** −0.567*** −0.469*** −0.539*** −0.006*** −0.005*** −0.006*** −0.011*** −0.009*** −0.010*** Y
(0.012) (0.009) (0.011) (0.209) (0.146) (0.192) (0.002) (0.001) (0.002) (0.003) (0.003) (0.003)
Polypropylene (PP) −0.023** −0.019** −0.022** −0.223 −0.188 −0.213 −0.003* −0.003** −0.003** −0.006** −0.005** −0.006** N
(0.010) (0.007) (0.009) (0.182) (0.126) (0.166) (0.002) (0.001) (0.002) (0.003) (0.002) (0.003)
PVC −0.040*** −0.043*** −0.041*** −0.497*** −0.528*** −0.508*** −0.006*** −0.006*** −0.006*** −0.011*** −0.012*** −0.011*** Y
(0.008) (0.007) (0.008) (0.145) (0.102) (0.133) (0.001) (0.001) (0.001) (0.002) (0.002) (0.002)
Metal
Iron ore −0.016 −0.004 −0.012 −0.246 −0.107 −0.205 −0.002 −0.001 −0.002 −0.004 −0.001 −0.003 N
(0.016) (0.012) (0.015) (0.287) (0.200) (0.264) (0.003) (0.002) (0.002) (0.004) (0.004) (0.004)
Table 7 Estimates of the key variable of interest (by product) at SHFE: montm
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) Support
Industrial
Fuel 0.395** 0.131*** 0.098** 1.977*** 1.447** 1.136** 0.057** 0.018** 0.015** 0.101*** 0.032** 0.025* N
(0.155) (0.049) (0.042) (0.666) (0.589) (0.482) (0.022) (0.008) (0.007) (0.038) (0.014) (0.013)
Rubber 0.146*** 0.090*** 0.082*** 1.391*** 1.268*** 1.199*** 0.022*** 0.014*** 0.013*** 0.040*** 0.024*** 0.022*** N
(0.035) (0.011) (0.009) (0.165) (0.143) (0.116) (0.005) (0.002) (0.002) (0.009) (0.003) (0.003)
Metal
Aluminum 0.056** 0.015* 0.010 0.249** 0.156 0.106 0.008** 0.002 0.001 0.014** 0.003 0.002 N
(0.024) (0.008) (0.006) (0.111) (0.098) (0.081) (0.003) (0.001) (0.001) (0.006) (0.002) (0.002)
Copper 0.007 0.034*** 0.037*** 0.542*** 0.597*** 0.629*** 0.001 0.005*** 0.006*** 0.003 0.009*** 0.010*** N
(0.018) (0.006) (0.005) (0.086) (0.074) (0.061) (0.003) (0.001) (0.001) (0.005) (0.002) (0.002)
seasonal effects on price volatility in the months leading to harvest times in various
agricultural commodity futures markets (Frank and Garcia 2011; Karali and Thurman
2010). Our sample entails a total of 22 agricultural products, all of which demonstrate a
systematic seasonal component (i.e., summer) relating to the average price volatility.
The elevated price volatility during pre-harvest months supports the theory of storage
(Karali and Thurman 2010). Interestingly, the seasonality effect depicts a noticeably
different pattern in the SHFE sample, which may be related to the fact that volatility in
metals and industrial commodities is mainly driven by demand, as opposed to supply
for agricultural products.
In summary, we find some support for the maturity effect in the Chinese agricultural
commodity futures markets, but not among metal and industrial products.
5 Conclusion
In this study, we test the maturity effect, when controlling for global crude oil prices, using
a new sample of 41 agricultural, metal, and industrial commodity futures in a developing
economy. Our analysis results confirm the existence of the maturity effect for agricultural
commodities, along with mixed results for metal and industrial products in Chinese
commodity futures markets, which are consistent with previous studies on other more
mature financial markets. These findings are robust to various dispersion measures and
model specifications.
To date, Chinese commodity futures trading is still largely domestic and more restricted
(e.g., daily price range limit, controlled exchange rate and capital flows) than its Western
counterparts, despite its increasing influence on the global markets, particularly for copper
and iron ore. In September 2017, the China Securities Regulatory Commission (CSRC)
announced plans to open up the country’s futures markets, as part of the efforts to facilitate
its capital market deregulations.28 In March 2018, China officially launched crude oil futures
trading, which allows participation from overseas investors for the very first time,29 and it
has already had an impact on global prices. The success of this market has put forth a
significant step towards deregulation. In fact, China has announced to launch additional
yuan-dominated futures contract trading (i.e., rubber and non-ferrous metals) to further
internationalize its domestic commodity futures market.30 With the changing landscape in
the world’s commodity futures trading, there is much room for future research. For example,
it would be interesting to study the implications of an open Chinese capital market for the
global financial system. In addition, future studies may re-evaluate the maturity effect in
China’s deregulated commodity futures market. These and related issues are beyond the
scope of the current study, but will remain a priority for the authors in future research.
28
Source: “Regulator says to open China’s futures market further – China Securities Journal,” by Reuters
staff, September 27, 2017, Reuters (https://www.reuters.com/article/china-markets-regulator/regulator-says-to-
open-chinas-futures-market-further-china-securities-journal-idUSL4N1M90NU).
29
Source: “China’s long-heralded crude oil futures contract to start trading March 26,” by Daniel Ren, South
China Morning Post (http://www.scmp.com/business/commodities/article/2132765/chinas-long-heralded-
crude-oil-futures-contract-start-trading).
30
Source: “China to open up access to yuan-dominated commodity futures contracts as trade war escalates,”
by Daniel Ren, South China Morning Post (https://www.scmp.com/business/china-business/article/3012161
/china-open-access-yuan-denominated-commodity-futures).
Appendix
Table 8 Daily futures price limits of Chinese market and the U.S. market
Underlying asset Price range limit in Price limits in U.S. marketa

Chinese market
Aluminum, copper, Pre-settle Aluminum: $6.25

natural rubber price+/−3% Copper: $12.5 (minimum fluctuation)
Natural rubber: not traded in this market
Fuel Pre-settle (crude oil futures) initial limits: $3
price+/−5% price limit can raise to $6 if previous
settlement price is at $3 in any back month
Corn, corn starch, egg, RBD palm olien, Pre-settle Corn futures ($0.3 cents, before 2015,
soybean grade 1, soybean grade 2, price+/−4% the limit was $0.25 cents. Corn contracts
soybean meal, soybean oil, also have $0.4 expanded price limit)
block board, coke, coking coal, Soybean ($0.6)
fiber board, polyethylene, Soybean meal ($20)
polypropylene, PVC, iron ore Soybean oil ($0.02)
Iron ore ($0.01)
Cotton, hardy wheat, Indica rice, Pre-settle Cotton ($5)
Indica rice (new), late Indica rice, price+/−4% Wheat ($22, and $0.55 for
Japonica rice, rape oil, rape seed, expanded price limit)
rapeseed oil, glass, white sugar, Rice ($0.75, and $1.15 for
strong gluten wheat, strong glute expanded price limit)
wheat (new), methanol,
methanol (new),
Pure terephthalic acid (PTA),
thermal coal, ferro-silicon alloy,
silicon-manganese alloy
Common wheat, rapeseed meal Pre-settle
price+/−5%
a Source: https://www.cmegroup.com/trading/Price-Limit-Update.html
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Publisher’s note Springer Nature remains neutral with regard to jurisdictional claims in published maps and
institutional affiliations.
Affiliations
Jing Ao 1 & Jihui Chen 2
Jing Ao
jao@kent.edu
1
Department of Finance, College of Business Administration, Kent State University, P.O. Box 5190, Kent,
OH 44242, USA
2
Department of Economics, Illinois State University, Campus Box 4200, Normal, IL 61790, USA

Price Volatility, The Maturity Effect

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Journal of Economics and Finance

Price Volatility, the Maturity Effect, and Global Oil

Jing Ao 1 & Jihui Chen 2

# Academy of Economics and Finance 2020

Keywords Futures Markets . Price Volatility . Chinese Commodity Futures

JEL Classification G13 . G15 . Q02

There is an extensive literature on price volatility in futures markets with alternative

Extended author information available on the last page of the article

3.1 Price Limits

3.2 Position Limits

3.3 Delivery Process

On a given exchange, we estimate the following model

þ θ*Z t þ εitk ð1Þ

& logodds ratio (logodds): logodds ¼ ln1−ginigini

the world’s leading consumer of commodities, particularly, energy and industrial

Table 1 Summary statistics

Variable Obs Mean Std. Dev. Min Max

ln(oil) 5067 4.373 0.302 3.329 4.915

4.1 Empirical Analysis

PTA Cotton Early Rice

7.5 7.5 7.5

(a) (b) (c)

Methanol Thermal Coal Rapeseed Oil

8.5 7.5 8.5

(d) (e) (f)

Early Rice (New)

Fig. 1 Daily close prices on the CZCE, by product

Corn PVC Soybean Grade1

(a) (b) (c)

Soybean Oil Soybean Meal

7.5 7.5 7.5

trading date trading date trading date

(d) (e) (f)

Iron Ore Egg

Fig. 2 Daily close prices on the DCE, by product

Fig. 3 Daily close prices on the SHEF, by product

Underlying asset Price range limit in Price limits in U.S. marketa

Aluminum, copper, Pre-settle Aluminum: $6.25

Jing Ao 1 & Jihui Chen 2

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