This paper employs a proprietary data set on commodity producers’ profit margins (PPMG) and establishes a robust positive relationship between commodity producers’ profitability growth and future returns of commodity futures. The spread portfolio that longs top-PPMG futures contracts and shorts bottom-PPMG futures contracts delivers a statistically significant average weekly return of 36 basis points. We further demonstrate that profitability is a strong SDF factor in commodity futures market. We theoretically justify our empirical findings by developing an investment-based pricing model, in which producers optimally adjust their production process by maximizing profits subject to aggregate profitability shocks. The model reproduces key empirical results through calibration and simulation.

As the launch of the China’s first stock index futures (SIF) approaches with no exact date for its eventual introduction. The Chinese stock market has increased dramatically due to this expectation recently, especially the futures contracts related stocks have raised significantly which are good examples of this influence. As the stock index futures is a new financial product, Chinese investors cannot help wondering whether the launch of the stock index future will have a positive or negative impact upon the underlying stock market. On the other hand, the new instruments which, will be followed by the introduction of other derivatives, will require broker-dealers to upgrade their systems and invest in new technology. Therefore, it has become pertinent to investigate the opportunities and challenges this eagerly awaited derivative instrument has to offer to fund managers in the booming Chinese economy.

This paper investigates the hedging effectiveness of the Copper Futures contracts using daily settlement prices for the period from 23 July, 2008 to 3 July, 2009. Different econometric models are used to estimate the optimal hedging ratios of Copper Futures on the Shanghai Futures Market. The hedging performance is firstly analyzed by the OLS regression model, the Error Correction model (ECM) and the Bivariate-GARCH Model. Then the Minimum-Variance Hedge Strategy is adopted to evaluate the statistical models. Secondly this research uses a non-parametrical method, the Genetic Algorithms to predict the hedging ratio based on the historical data. Then finally whether the Genetic Programming could produce better hedging parameters than the standard hedging model will be revealed.

This paper provides a theoretical analysis of return and volatility spillover effects between developed and emerging futures markets with investment obstacles. It mainly focuses on analysis of the effects on equilibrium futures price, investors’ trading strategies and their wealth distributions in the emerging market. Three hypotheses are proposed. The first two assume that there is either return or volatility spillover between the two markets. The last one combines the first two together by assuming that there are both return and volatility spillovers between the markets. Our analysis results show that the equilibrium futures price, investors’ trading strategies and their wealth distributions in the emerging futures market are affected by (1) the scale of informed traders in the emerging market who form their expectations of delivery price by using the spillovers from the developed market, (2) the spillovers degree that the informed in the emerging market expect, and (3) whether there is return spillover or volatility spillover, or both. Overall, the findings suggest that if there are both return and volatility spillovers, then ignoring the volatility spillover, investors will make improper investment decisions so that the futures contracts could be overpriced and the traders’ wealth could be harmed. The theoretical analysis provide an important implication for empirical examination on the spillover effects between markets, that is, both return and volatility spillover effects should be considered jointly, otherwise the return spillover effects can be overestimated. Empirical examination in copper futures markets generally supports the conclusions drawn from our theoretical analysis.