Abstract

With the database of daily copper futures contracts on Chinese market, extremal dependence between futures market and spot market is calculated using the extreme value theory and copula function. It is found that asymmetric behavior in the left and right tails of the joint marginal extreme distribution, that is, correlation increases in bear markets, but not in bull markets. Hedgers who hold short positions therefore benefit more than those who hold long positions. Empirical results also show the weakness of the function of price discovery when markets are bearish. It is hard to be used to hedge spot price volatility in such situation.

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