The Macroeconomic Determinants of Commodity Futures Volatility : The Evidence from Chinese and Indian Markets

This paper examines the macroeconomic determinants of volatility of commodity futures. The focus of this paper is on two emerging commodity markets, China and India. It covers commodity futures from different sectors, including agricultural commodity futures, metal futures and oil futures. The macroeconomic variables include both domestic and international macroeconomic information, which cover economic environment, monetary policy and financial market information. The GARCH-MIDAS model decomposes the volatility series into short-run and long-run, and allows to incorporate data with mixed frequencies. Taking advantage of this model, we include the daily price volatility and low-frequency macroeconomic variables directly in the model and investigate whether the macroeconomic variables can determine the long-run variance. The findings of this research show the existence of long-run volatility component. It also shows a significant relationship between low-frequency macroeconomic variables and long-run variance of commodity futures. The findings of this research indicates that both domestic and international macroeconomic information plays an important role in determining the emerging commodity futures price volatility