The Macroeconomic Influence of China Futures Market: A GARCH-MIDAS Approach

Abstract

We revisit the relationship between the commodities futures market volatility and the macroeconomic factors, by employing the GARCH-MIDAS model, which can decompose the conditional variance into the secular and short-run component. We introduce the level or the variance of the macroeconomic variables into the GARCH-MIDAS model, to test the impact of the macroeconomic variables on the long-run variance. In the paper, we find the variance of PPI and IP has a more significant impact on the volatility of China commodities futures market than the level of the macroeconomic variables.