An empirical study on regulated Chinese agricultural commodity futures market based on skew Ornstein-Uhlenbeck model

In this research, we depict the regulated agricultural commodity futures market in China, in which we focus on six actively-traded futures: corn, strong gluten wheat, No.1 soybean, soymeal, cotton and white sugar. A novel skew Ornstein-Uhlenbeck model is employed to characterize price dynamics with government controls. The empirical analysis reveals that there exist significant skew phenomena in these six futures and indicates that the price dynamics are regulated by the state policy. Particularly, for grain futures, the observed skew phenomena are the most obvious while we detect relatively weaker evidence of skew phenomena in oilseeds and softs futures markets than grain futures, but still statistically significant. In addition, generalized quasi-likelihood ratio tests show that skew Ornstein-Uhlenbeck model is superior to Ornstein-Uhlenbeck model.