Convenience yield of accessible inventories and imports: A case study of the Chinese copper market

Inventories have traditionally been regarded as key measures to respond to market risks. Although benchmark exchanges are increasingly important, their inventories actually utilized are those in the local markets. The perspective that we benefit from the inventories that are available and in proximity is conceptualized as the accessibility of inventories. To explore the accessibility issue, this study analyzes the convenience yields of the Chinese domestic copper market for the period of January 2011 through April 2015. The results indicate that local markets benefit from and are influenced by accessible inventories, but not from less accessible inventories. Furthermore, imports act as inventory inflows, which can be considered the movement of the accessible inventories that provide convenience yields to local markets. In addition, we show that volatility is the central difference between the cost-of-carry and option pricing models, which are representative estimation methods for convenience yields.