Copula change point detection knowledge: The dynamic connection between international crude oil and China's nonferrous metal market

Abstract

Crude oil, “the blood of industry” plays an irreplaceable role in the field of industrial production. The fluctuation in oil prices directly affects metal mining and processing, which in turn affects the dynamic development of the nonferrous metal market. This study examines the dynamic connection between international crude oil and China's nonferrous metal market using a change-point detection copula method. Under hypothesis testing, the change points in the dynamic connection are well detected using our method. The results show that the occurrence of change points may be related to the production policy of the Organization of Petroleum Exporting Countries (OPEC). Information about the connection before the change points will obscure the useful information, resulting in inaccurate knowledge about the dynamic connection. In addition, the connection has a profound impact on return forecasts. The test results based on sample data from the post-change point are more likely to accept the null hypothesis. This accuracy of the return forecasts based on sample data from the post-change point is attributed to the exact establishment of the dynamic connection between crude oil and nonferrous metal market. When returns are forecast accurately, useful market information can be developed into “good knowledge” about the dynamic connection. Hence, the connection before the change points makes little contribution to forecast returns; the useful information for forecasting is the connection starting from the change points. This “good knowledge” about the dynamic connection is conducive to accurately predicting returns, thereby solving the relation between risk prevention and sustained development.