# Causality between Arbitrage and Liquidity in Platinum Futures

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## Abstract

**:**

## 1. Introduction

## 2. Platinum Futures Market Details and Data

#### 2.1. Market Institutional Details

#### 2.2. Data and Sample

#### 2.3. Variable Construction

## 3. Methodology

## 4. Empirical Results

## 5. Conclusions

## Author Contributions

## Funding

## Data Availability Statement

## Acknowledgments

## Conflicts of Interest

## Notes

1 | NYMEX is part of the CME Group, and TOCOM is part of the Japan Exchange Group. |

2 | The NYMEX platinum contract specifications can be found at https://www.cmegroup.com/markets/metals/precious/platinum.contractSpecs.html (accessed on 3 May 2019). The TOCOM platinum standard contract specifications can be found at https://www.jpx.co.jp/english/derivatives/products/precious-metals/platinum-standard-futures/01.html (accessed on 3 May 2019). |

3 | Note that in addition to limits in the expiry month, TOCOM imposes looser position limits in the month before the expiry month and the second contract month. There is also a position limit for all contract months combined. |

4 | TOCOM extended its trading hours after the sample period of our study. The day session now opens at 8:45 a.m. JST and closes at 3:15 p.m. The night session runs from 4:30 p.m. to 6:00 a.m. the next day. |

5 | Forward exchange rates are used for the currency conversion presuming that the arbitrage trades between the New York and Tokyo markets are held to expiry. 12-month LIBOR rates are used when the futures have between 12 and 6 months to expiry, 6-month rates for when the contracts have between 6 and 3 months to expiry, the 2-month rates for when the contracts have between 2 months and 1 month to expiry, 1-month rates for when the contracts have between 1 month and 1 week to expiry, and 1-week rates are used for the contracts when they have less than 1 week to expiry. One gram is equivalent to 0.03215 troy ounces. |

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**Figure 1.**Daily prices for the April 2016 futures on TOCOM and NYMEX. (Note: The figure shows the daily April 2016 futures prices for platinum on NYMEX and TOCOM in US dollars per troy ounce on the RHS axis and Japanese yen per kilogram on the LHS axis).

**Figure 2.**Arbitrage profit and liquidity variables. (Note: The figure shows the 5 min of average arbitrage profit (PROF) and the relative bid–ask spreads for the NYMEX (SPNY) and TOCOM (SPTO) contracts calculated from 1 min data for 264 trading days starting at 9:00 a.m. Japan Standard Time (JST) on 7 May 2015 and ending at 4:00 a.m. JST on 23 April 2016 in basis points in panels (

**a**–

**c**), respectively. The shaded regions indicate the five subsamples).

**Figure 3.**Platinum futures contract volumes on TOCOM and NYMEX (Notes: Panels (

**a**,

**b**) show the 5-min aggregate trading volumes for the TOCOM (VOLTO) and NYMEX (VOLNY) April 2016 platinum futures contracts over 264 trading days starting at 9:00 a.m. Japan Standard Time (JST) on 7 May 2015 and ending at 4:00 a.m. JST on 23 April 2016, respectively. Panel (

**c**) provides the cumulative total trading volume for the April 2016 contract on each exchange over the sample period. The shaded regions indicate the five subsamples).

**Figure 4.**Response of SPNY to a shock in PROF. (Notes: The solid lines represent the 200-step-ahead GIRFs. The dashed lines show 90-percent confidence intervals bootstrapped using 200 iterations).

**Figure 5.**Response of SPTO to a shock in PROF. (Notes: The solid lines represent the 200-step-ahead GIRFs. The dashed lines show 90-percent confidence intervals bootstrapped using 200 iterations).

**Figure 6.**Response of PROF to a shock in SPNY. (Notes: The solid lines represent the 200-step-ahead GIRFs. The dashed lines show 90-percent confidence intervals bootstrapped using 200 iterations).

**Figure 7.**Response of PROF to a shock in SPTO. (Notes: The solid lines represent the 200-step-ahead GIRFs. The dashed lines show 90-percent confidence intervals bootstrapped using 200 iterations).

**Figure 8.**Response of SPTO to a shock in SPNY. (Notes: The solid lines represent the 200-step-ahead GIRFs. The dashed lines show 90-percent confidence intervals bootstrapped using 200 iterations).

**Figure 9.**Response of SPNY to a shock in SPTO. (Notes: The solid lines represent the 200-step-ahead GIRFs. The dashed lines show 90-percent confidence intervals bootstrapped using 200 iterations).

2015 | 2016 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|

Exchange | May | Jun. | Jul. | Aug. | Sep. | Oct. | Nov. | Dec. | Jan. | Feb. | Mar. | Apr. |

TOCOM | Farthest | 2nd Farthest | 3rd Farthest | 3rd Nearest | 2nd Nearest | Nearest | ||||||

NYMEX | 11 | 10 | 9 | 8 | 7 | 6 | 5 | 4 | 3 | 2 | 1 | Expiry |

Subsamples | 1 | 2 | 3 | 4 | 5 |

Full Sample | Subsample 1 | Subsample 2 | |||||||

PROF | SPTO | SPNY | PROF | SPTO | SPNY | PROF | SPTO | SPNY | |

Mean | 0.0040 | 0.0009 | 0.0020 | 0.0024 | 0.0004 | 0.0066 | 0.0077 | 0.0007 | 0.0020 |

Median | 0.0043 | 0.0009 | 0.0007 | 0.0021 | 0.0004 | 0.0061 | 0.0077 | 0.0007 | 0.0014 |

Minimum | 0.0000 | 0.0002 | 0.0001 | 0.0000 | 0.0002 | 0.0008 | 0.0047 | 0.0002 | 0.0003 |

Maximum | 0.0110 | 0.0030 | 0.0127 | 0.0108 | 0.0009 | 0.0127 | 0.0110 | 0.0013 | 0.0047 |

St. Dev. | 0.0031 | 0.0004 | 0.0025 | 0.0025 | 0.0001 | 0.0021 | 0.0009 | 0.0001 | 0.0011 |

Skewness | −0.03 | 0.56 | 1.83 | 0.66 | 0.38 | 0.12 | 0.18 | 0.53 | 0.75 |

Ex. Kurtosis | −1.46 | 0.81 | 2.32 | −0.73 | 0.84 | −1.19 | 1.75 | 1.51 | −1.00 |

Unit Root | −5.66 | −61.13 | −10.09 | −12.76 | −54.53 | −16.92 | −7.23 | −58.49 | −8.05 |

P-value | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 |

Observations | 41,322 | 41,322 | 41,322 | 7455 | 7455 | 7455 | 8946 | 8946 | 8946 |

Subsample 3 | Subsample 4 | Subsample 5 | |||||||

PROF | SPTO | SPNY | PROF | SPTO | SPNY | PROF | SPTO | SPNY | |

Mean | 0.0055 | 0.0010 | 0.0007 | 0.0015 | 0.0012 | 0.0005 | 0.0007 | 0.0011 | 0.0010 |

Median | 0.0057 | 0.0010 | 0.0006 | 0.0005 | 0.0012 | 0.0005 | 0.0006 | 0.0010 | 0.0010 |

Minimum | 0.0001 | 0.0003 | 0.0002 | 0.0000 | 0.0003 | 0.0001 | 0.0000 | 0.0003 | 0.0004 |

Maximum | 0.0095 | 0.0023 | 0.0034 | 0.0076 | 0.0030 | 0.0013 | 0.0036 | 0.0025 | 0.0017 |

St. Dev. | 0.0016 | 0.0002 | 0.0004 | 0.0019 | 0.0003 | 0.0001 | 0.0006 | 0.0003 | 0.0002 |

Skewness | −0.33 | 0.49 | 2.01 | 1.17 | 1.22 | 0.83 | 0.68 | 1.31 | 0.55 |

Ex. Kurtosis | −0.29 | 0.63 | 4.02 | −0.09 | 3.51 | 1.04 | −0.28 | 2.64 | 0.37 |

Unit Root | -3.91 | −34.24 | −22.98 | −5.12 | −30.88 | -60.67 | −7.24 | −13.37 | −24.26 |

P-value | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 |

Observations | 10,437 | 10,437 | 10,437 | 14,484 | 14,484 | 14,484 | 3408 | 3408 | 3408 |

Full Sample | Subsample 1 | Subsample 2 | ||||

VOLTO | VOLNY | VOLTO | VOLNY | VOLTO | VOLNY | |

Mean | 11.08 | 16.75 | 46.02 | 0.00 | 10.51 | 0.10 |

St. Dev. | 39.65 | 58.04 | 77.36 | 0.10 | 29.96 | 1.59 |

Skewness | 10.90 | 10.32 | 5.57 | 31.34 | 15.89 | 36.71 |

Ex. Kurtosis | 202.98 | 215.55 | 50.81 | 1150.56 | 501.97 | 1885.75 |

Maximum | 1464 | 2471 | 1464 | 5 | 1323 | 99 |

Sum | 457,723 | 692,167 | 343,072 | 30 | 94,006 | 904 |

Subsample 3 | Subsample 4 | Subsample 5 | ||||

VOLTO | VOLNY | VOLTO | VOLNY | VOLTO | VOLNY | |

Mean | 1.03 | 1.33 | 0.69 | 46.77 | 1.56 | 0.19 |

St. Dev. | 6.48 | 7.83 | 3.47 | 90.43 | 6.98 | 2.07 |

Skewness | 29.02 | 15.88 | 11.36 | 6.76 | 13.71 | 21.45 |

Ex. Kurtosis | 1403.95 | 340.72 | 189.45 | 93.15 | 292.49 | 526.09 |

Maximum | 388 | 230 | 102 | 2471 | 209 | 62 |

Sum | 10,713 | 13,833 | 9932 | 677,400 | 5321 | 632 |

Null Hypothesis | Subsample 1 | Subsample 2 | Subsample 3 | Subsample 4 |
---|---|---|---|---|

PROF does not Granger cause SPNY or SPTO | 5.40 *** | 2.12 *** | 2.32 *** | 3.70 *** |

SPTO does not Granger cause SPNY or PROF | 5.55 *** | 16.89 *** | 6.73 *** | 6.21 *** |

SPNY does not Granger cause SPTO or PROF | 6.48 *** | 1.63 *** | 4.14 *** | 11.63 *** |

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## Share and Cite

**MDPI and ACS Style**

Iwatsubo, K.; Watkins, C.
Causality between Arbitrage and Liquidity in Platinum Futures. *J. Risk Financial Manag.* **2022**, *15*, 593.
https://doi.org/10.3390/jrfm15120593

**AMA Style**

Iwatsubo K, Watkins C.
Causality between Arbitrage and Liquidity in Platinum Futures. *Journal of Risk and Financial Management*. 2022; 15(12):593.
https://doi.org/10.3390/jrfm15120593

**Chicago/Turabian Style**

Iwatsubo, Kentaro, and Clinton Watkins.
2022. "Causality between Arbitrage and Liquidity in Platinum Futures" *Journal of Risk and Financial Management* 15, no. 12: 593.
https://doi.org/10.3390/jrfm15120593