Taking the daily data for aluminum futures prices from 2003 to 2007 as sample, this article examines the factors of fluctuations for aluminum futures prices in China and studies the effects of these factors on futures price curve. First, this article presents the improving method on the base of predecessor research. Next, by the daily data for aluminum futures price contracts traded at the Shanghai Futures Exchange (SHFE), five continuous futures contracts are constructed. By applying principal components analysis to the daily data of these continuous futures contracts prices, it is concluded that a three-factor model represents the stochastic movement of futures prices fluctuations. These factors can be identified as shifts in the level of the price curve, the slope of the price curve, and the curvature of the price curve respectively. Finally, the model is extended to the futures price model and the empirical results show that both the models fit very well.
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