Aluminium price discovery on the London Metal Exchange, 2007-2017
AbstractThe aim of the paper is to extend the analysis of aluminium price discovery on the London Metal Exchange (LME) beyond the 2007-2008 global financial crisis. To this end a VEC DCC-MGARCH model on the weekly sampled price series of spot and 3-month aluminium futures in the period 3/10/2007–27/09/2017 is estimated (10 years, 522 observations). The results of the study reveal that both prices exhibit a common stochastic trend and their spread have co-integrating properties. The hypothesis stating that they equally quickly revert to the long-run equilibrium relationship is rejected. An increased conditional volatility of their returns is observed during the crisis and after that a slightly decreasing albeit very close to unity their conditional correlation coefficient. Nevertheless, a constant conditional correlation hypothesis (CCC-MGARCH) is rejected. More interestingly, the term premium is likely to be proportional to the exchange rate of US dollar into British pound.
|Publication size in sheets||1|
|Book||Papież Monika, Śmiech Sławomir (eds.): The 12th Professor Aleksander Zelias International Conference on Modelling and Forecasting of Socio-Economic Phenomena : conference proceedings, Socio-Economic Modelling and Forecasting, no. 1, 2018, Foundation of the Cracow University of Economics, ISBN 978-83-65907-20-2, 611 p., DOI:10.14659/SEMF.2018.01|
|Keywords in English||aluminium futures, London Metal Exchange, VEC DCC-MGARCH|
|License||Publisher website (books and chapters only); published final; ; with publication|
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