Price spillovers and interdependences in China's agricultural commodity futures market: Evidence from the US-China trade dispute

Abstract

We examine the effects of the US-China trade dispute on price spillovers and interdependencies among the ten most liquid agricultural futures contracts traded on China's commodity exchanges by employing the time-varying connectedness framework modified by Antonakakis, Chatziantoniou, and Gabauer (2020). We find that the overall market frictions increase modestly due to the clustering of mixed informational disturbances caused by the trade dispute. This lowers the gross spillovers in the entire asset system by reducing the efficiency of general price signal transmission. Notably, subsidiary products of rapeseed and soybean contribute the most to the total and net directional spillovers in the whole market, acting as shock transmitters before the trade dispute. The RBD palm market gains a dominant role as a shock transmitter during the trade dispute and its role strengthens further after the trade agreement was reached. Additionally, the average intensity of pairwise spillovers declines considerably during the trade dispute, suggesting weakening asset interconnectedness. The responsiveness of shock transmission channels to the trade dispute impacts is found to vary across industrial chains and the presence of delayed economic effects is detected in the structural changes of market interdependences.