Abstract
AbstractIn this study, we investigate the existence of long-term co-movements among the prices of commodity futures contracts. We use a cointegration test, which accounts for the presence of a structural break. We show that while there is a long-term relationship among agricultural and among non-agricultural commodity futures prices when a structural break is taken into account, there is no such relationship without allowing for a structural break. We also show that these break points, in fact, occur a few months before the recent global financial crisis. Although the previous literature broadly casts doubt on such price co-movements, our results confirm that market performance improved during the sample period.
Highlights
Pindyck and Rotemberg (1990) demonstrate that the prices of several commodities such as wheat, cotton, copper, gold, crude oil, lumber and cocoa are likely to move together
The estimated date of the structural break is 26 August 2008, which is approximately three weeks before the Lehman shock. These results indicate that the precise date for the recent financial crisis is the Lehman shock
The number of cointegrating relationships and estimated dates of break points are robust within each specification
Summary
Pindyck and Rotemberg (1990) demonstrate that the prices of several commodities such as wheat, cotton, copper, gold, crude oil, lumber and cocoa are likely to move together. Our results imply that the futures markets of precious metals and agricultural commodity have improved its functioning over the 10-year sample period, in line with the findings of Malliaris and Urrutia (1996) and Bhar and Hamori (2006). 2. Data We use the Nikkei-TOCOM Sub Commodity Indexes for four precious metal futures contracts traded at the TOCOM: gold, palladium, platinum and silver. We obtain consistent results from the ADF and KPSS tests This leads us to the conclusion that the prices of the four precious metals and four agricultural futures contracts are integrated of order one, I(1). The estimated break points for the futures prices of palladium and platinum lie between March 2008 and December 2008, which includes 15 September 2008, the starting point of the “Lehman shock” Those of gold and silver vary widely.
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