Abstract:
In the global trend of commodities financialization, commodity futures are changing to an important asset class. This paper aims to investigating investment properties of Chinese commodity futures, from aspects of risk premium, diversification and risk factors. We find that the risk premium of commodity futures is positive, supporting the normal backwardation theory. Similar to the U.S., Chinese commodity prices are positively correlated with stock prices in the last decade, indicating a weak risk diversification function. Further analyses show that inflation and business cycle comovements are the main channels of this positive correlation. In addition, risk factors, which can forecast risk premiums in the U.S. markets, do not have predictive power in Chinese markets.
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