The impact of liquidity risk in the Chinese banking system on the global commodity markets

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We show that liquidity risk in the Chinese banking system, via the demand of commodities as collateral, affects commodity markets. Investors in China, to circumvent capital controls, import commodities, collateralize them, and use the loan proceeds to invest in domestic banking products. The Chinese banking system plays a crucial role in every step of this process. Thus, liquidity risk in the Chinese banking system may impact the demand of commodities as collateral. We find empirically that the liquidity risk affects excess returns and risk premium in commodity futures in Chinese and global markets. Our findings give new insights into commodity markets by unraveling their risk exposure to the Chinese interbank market due to the financialization of commodities.
Publisher
ELSEVIER
Issue Date
2022-03
Language
English
Article Type
Article
Citation

JOURNAL OF EMPIRICAL FINANCE, v.66, pp.23 - 50

ISSN
0927-5398
DOI
10.1016/j.jempfin.2021.12.003
URI
http://hdl.handle.net/10203/296399
Appears in Collection
MG-Journal Papers(저널논문)
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