The impact of downward/upward oil price movements on metal prices

Abstract

We examine the impact of large upward/downward oil price movements on metal prices and the asymmetric response of metal prices to large oil price movements. We use copulas to characterize dependence between oil and metal price returns and we quantify spillover effects by computing the unconditional and conditional value-at-risk. Taking price data for ten metals – six industrial (aluminium, copper, lead, nickel, tin and zinc) and four precious (gold, silver, palladium and platinum) – widely traded on the London Metal Exchange for the period 2000 to 2015, our empirical evidence indicates that large downward and upward oil price movements had spillover effects on all these metals both before and after the outbreak of the global financial crisis. The fact that spillovers for upward oil price movements were larger than for downward oil price movements provides evidence of asymmetric spillover effects. Our results have implications for downside and upside risk management for investors and manufacturers.