Essays on asset pricing and international finance

Abstract

In this study, I study futures markets with respect to empirical asset pricing and international finance. In the first essay, I show that short-term funding liquidity risk in the Chinese interbank system affects global commodity markets. To circumvent capital controls, investors in China import commodities, collateralize them, and invest in high-yielding shadow banking products. I examine how the risk of the shadow banking products affects commodity markets. Specifically, due to maturity mismatch problems of these products, I focus on funding liquidity risk. I find the strong empirical support that this liquidity risk affects commodities futures risk premiums. Moreover, I show, as expected, that this impact is stronger for metal commodities as they are better suited as collateral. In the second essay, I re-examine the time series momentum anomaly in order to resolve several issues raised in a previous study. I first find that there is a significant and economically meaningful time series momentum anomaly regardless of the volatility scaling method. I also show that the anomaly exists even after considering the characteristics of diversified futures markets and more factors. Lastly, I show that the time series momentum has continued to show this anomaly in recent years.