Copper Price Discovery on Comex, the LME and the SHFE, 2001-2013

Abstract

Over the past two decades, China has come to dominate international commerce in copper. The importance of the Shanghai Futures Exchange(SHFE) has increased in response to this development. We look at the distribution of price discovery between the SHFE and the two historically important copper futures exchanges, Comex and the LME. The resultsindicate that it is Comex, followed by the SHFE, not the LME which plays the most important role in copper price discovery. We also highlighta number of problems associated with both the calculation and interpretation of the standard IS and PT price discovery measures when used to look at overlapping price change on non-synchronous markets.The results offer a clearer interpretation in terms of trading slots (European, North American and Asian trading days) than in terms of exchanges.