Metal Futures Market Research Articles

Volatility Dynamics of Base Metal Futures: Empirical Evidence from an Emerging Economy

The paper examines the leverage effects and the spillover effects in the base metal cash and futures market. The study also attempts to find the trend and the pattern of volatility clustering in the base metal markets of India. Further, the significance of the risk premium and the possible downside risk of the market are also examined. The study confirms that unlike aluminium futures market, leverage effect is found for copper futures traded at MCX, India. Similar to aluminium, it is evident that the market advances generate larger volatility than the market turbulence in the cash and futures market of nickel. The study finds that the variance term (ξ) is not statistically significant for both cash and futures markets, which indicates that the risk premium of the asset is not significant to hedge. Further, unlike copper and aluminium, short-run volatility spillover is absent from the futures to the cash market of nickel. The paper concludes that the long-run volatility shock of futures has a persistent effect on the cash market of aluminium, copper and nickel and vice-versa. Future research might address the cross-volatility spillover between the base metal futures market. Further, the spillover between the Indian and London base metal futures markets is left for future research.

Impacts of geopolitical risk and economic policy uncertainty on metal futures price volatility: Evidence from China

In recent periods, the global metal trade has faced heightened uncertainty due to evolving geopolitical events and the dynamism of economic policies. The present study offers a detailed and encompassing investigation into the impacts of geopolitical risk (GPR) and economic policy uncertainty (EPU) on price volatility in the metal futures market. Notably, existing literature in this domain remains sparse. As a response, our analysis delves into the time-varying effects, volatility spillover dynamics, and heterogeneity across various countries and regions. Methodologically, we employ the GARCH-MIDAS framework, with a specific focus on the metal futures market in China. The research yields the following key findings: Firstly, aluminum futures prices exhibit sensitivity solely to geopolitical risk (GPR), whereas fluctuations in copper and zinc futures prices are influenced by both GPR and economic policy uncertainty (EPU). Furthermore, it is observed that GPR and EPU exert contrasting effects on price dynamics. Secondly, the impact of GPR and EPU on price fluctuations exhibits temporal variability. This influence gradually intensifies over time, culminating in a notable and sustained effect at a specific juncture post-2020. Thirdly, with the exception of copper futures, it is evident that GPR and EPU exert the most substantial influence on price fluctuations in metal resources exporting nations and countries with substantial demand for metal products within the context of China. The outcomes of this study carry significant policy implications. The observed time-varying effects may be construed as a reflection of the maturation process of China's metal futures market. Furthermore, the detected regional heterogeneity underscores the necessity for investors to differentially weigh countries when assessing the influence of geopolitical risk (GPR) and economic policy uncertainty (EPU) on China's metal futures market.

Which liquidity indicator is more informative to market volatility? Spectrum analysis of China’s base metal futures market

By applying the frequency domain causality test and cross-spectral coherence analysis, this study investigates the informational effects of liquidity indicators on the volatility of China’s base metal futures market from January 2016 to June 2022. We find that trading volume is more informative in economically explaining the price variations of most base metal futures for all frequency horizons, while open interest is more informative to Granger-cause economic innovations in the market volatility of the lead and nickel futures markets both in the short and long run. The coherence levels between the underlying frequency components for open interest are found to be greater than those for trading volume, suggesting that price volatility in China’s base metal futures market would be more responsive to shocks in open interest.

Analysis on the current situation, problems and potential solutions for the Chinese precious metals futures market

Since 1980, China's futures market has developed vigorously under the influence of the reform and opening-up system. Over the past forty years, the Chinese futures market has been on a steady rise and has become an important part of the Chinese economy. Since the outbreak of COVID-19 in 2020, the global economy has been hit by significant inflation in various countries, and the anti-inflationary properties of precious metals futures have played a great impact during this special period. This paper examines a series of problems in the precious metals futures market in China from the current situation of the market and proposes possible solutions. With China's accession to WTO, the globalization of China's financial market has accelerated, and in the process of acceleration has also brought many hidden dangers to China's financial market. China's financial market is not well regulated, thus leading to a chaotic situation. Therefore, it is important to analyze the current problems of the precious metal futures market through the current situation of China's precious metal futures market to stabilize the development of China's precious metal futures market.

Does the Base Metal Futures Market of India Support the MDH? An Empirical Evidence

The study examines the mixture of distribution hypothesis (MDH) and the sequential information arrival hypotheses (SIH) in the base metal futures market of India. We use near-month futures daily trading data of price, volume and open interest for 7 years. It is downloaded from the official website of Multi Commodity Exchange (MCX), India. The study supports the MDH as it confirms the existence of a contemporaneous correlation between the return and change in volume of all base metal futures traded at MCX, India. The article exhibits no causality between the return and volume change of metal futures which supports the MDH and contradicts the SIH. This indicates a greater level of market efficiency. The study finds unidirectional causality between the return and daily change of open interest and bidirectional causality between the change in volume and change in open interest. This is found for all base metal futures and this aspect is left for in-depth analysis by the futures studies.

Dynamic comovement and extreme risk spillovers between international crude oil and China's non-ferrous metal futures market

This paper analyses the dynamic comovement and extreme risk spillovers between international crude oil and China's non-ferrous metals futures by combining the application of Copula and CoVaR models, considering the effects of structural breaks and the frequency of cycles. The results show a positive linkage between crude oil and China's non-ferrous metals, with significant long-period comovement. Upside risk in crude oil prices can generate stronger extreme shocks to non-ferrous metals, as evidenced by the outbreak of COVID-19 in 2020. Compared to zinc and aluminum, copper is more susceptible to risk spillovers from crude oil, particularly in the event of a downside trend in crude oil. In addition, WTI crude oil and Brent crude oil show some variability in the upper and lower tail spillover effects. Our research explained to some extent the time-varying, cyclical and asymmetric impact on the non-ferrous metal futures market under crude oil shocks, which can be informative for industry planners, regulators, and investors in making targeted decisions. It is mainly the case when dealing with the many effects of geopolitical conflicts, trade frictions, and commodity supply and demand mismatches.

Impact Of Covid-19 On The Linkages Between Indochina Metal Futures Markets

This paper attempts to test whether the Covid-19 pandemic has an impact on the linkages of the metal futures market of India andChina. Taking Daily closing prices from 4 Jun 2016 to 23 Apr 2021 for the seven metals, including copper, aluminum, zinc, lead,nickel, gold, and silver, have been included in the study in the pre-announcement and post-announcement of covid-19 as a pandemic.The autoregressive distributed lag (ARDL) bound test and Johansen cointegration test report no cointegrating relationship between themarkets for all the metal futures before the covid period. There is no change in the absence of cointegration in the post-announcementperiod of Covid-19. Similarly, Granger causality results report no change in the short-run relationship between the metal futures marketsexcept for silver futures. The results have implications for portfolio managers and investors looking to reshuffle their portfolios in thelight of changes in the market due to the covid-19 pandemic.

Night Trading and Intraday Return Predictability: Evidence from Chinese Metal Futures Market

Night Trading and Intraday Return Predictability: Evidence from Chinese Metal Futures Market

The impact of events on metal futures based on the perspective of Google Trends

The development of behavioral finance theory and the Internet provides the possibility to analyze the impact of events on financial markets from the perspective of investor attention. To this end, this paper analyzes the impact of events on the metal futures market based on Google Trends perspectives using mixed frequency analysis and multifractal methods. Overall, the impact of events can be effectively reflected by investor attention in the metal futures market. Different metals react differently to events. Precious metals are safe havens during financial crises, while industrial metals are not. Earthquakes that occur in countries with large metal supply and demand sensitivities have a more significant impact on metal futures. As the international situation changes, the impact of pirating events on metal futures appears more significant after 2010. If necessary, powerful controls on industrial metals may be needed when events such as earthquakes and piracy occur. When events such as financial crises occur, strong policy measures may be needed to restore balance from the perspective of precious metals.

Cross-commodity hedging for illiquid futures: Evidence from China's base metal futures market

This paper evaluates the effectiveness of cross-commodity hedging between China's base metal spot and futures markets, using daily data of metal spot and futures prices in the Shanghai Futures Exchange. The main findings suggest that, compared to unhedged spot portfolios, a naïve hedge increases risk exposure, while static and dynamic hedges can significantly reduce the risk of holding spot assets. Zinc futures and nickel futures outperform other base metal futures in individually hedging lead spot and tin spot respectively, while copper futures constitute a moderately optimal instrument to hedge both lead and tin spot assets.

A Risk Measurement Model of China’s Non-Ferrous Metal Futures Market

With the impact of foreign exchange markets, risks in financial markets are becoming more complex and diversified, which underlines the importance of risk management in financial supervision. In this paper, China’s non-ferrous metal futures market is selected as the research object, and Shanghai Futures Exchange’s Industrial Metal Commodity Index (IMCI) data are used to measure risk using the conditional autoregressive value at risk (CAViaR) model. The US dollar index (USDX) is incorporated into the CAViaR model to study its impact on the risk. Through empirical analysis, we arrive at the following conclusions: First, the asymmetric slope CAViaR model (AS-CAViaR) is more suitable for measuring the risk in China’s non-ferrous metal futures market. Second, the risk is positively impacted by the lagged risk. Moreover, the impacts of positive and negative returns on the risk are asymmetric, with a negative return having a greater impact. Third, the positive and negative shock of USDX has significant and different impacts on the risk. These impacts can be caused by global capital flows. In addition, the impact of the vector of explanatory variables on the IMCI at different quantile levels is discussed based on the CAViaR-USDX model, which reflects the comprehensive advantages of the quantile regression method and the model’s applicability. The above conclusions verify the impact of USDX on China’s non-ferrous metal futures market and provide a theoretical basis and direction for risk monitoring.

Examining the evidence of risk spillovers between Shanghai and London non-ferrous futures markets: a dynamic Copula-CoVaR approach

PurposeThis paper aims to examine the evidence of risk spillovers between Shanghai and London non-ferrous futures markets using a dynamic Copula-CoVaR approach.Design/methodology/approachWith daily data, the marginal distributions and optimal Copula functions are determined using the kernel estimation method and squared Euclidean distance test. The conditional value-at-risk and the conditional value-at-risk spillover rate are computed from the Copula estimated parameters based on the Copula-CoVaR model. Also, the dynamic correlation coefficient between the two futures markets is investigated.FindingsThe empirical results are as follows: overall, the risk spillover effect exerted by the London Metal Exchange on the Shanghai Futures Exchange is more significant than vice versa. Moreover, the degree of risk spillovers exerted by the London Metal Exchange on the Shanghai Futures Exchange for zinc and copper are more significant when they are depressed in the London Metal Exchange. Moreover, the dynamic of the correlation between the Shanghai and London futures markets is attributed to be largely due to changes in the global economy.Research limitations/implicationsThe Copula-CoVaR model used in this paper is suitable for measuring the risk spillovers between two different markets, while the risk spillovers across multiple markets or the consideration of multiple risk factors cannot be accurately captured using this framework. Multiple state variables to capture time variation in the conditional moments of return series will be a topic in future research.Practical implicationsThe results provide theoretical support for risk management and monitoring of the non-ferrous futures markets.Originality/valueThe ability of the Copula function to accurately describe a nonlinear relationship and tail correlation is harnessed to measure the risk spillovers, explore the degree and direction of risk spillovers and identify the source of risk spillovers. The global economy is incorporated as a macro factor to explore its inner connection with the dynamic of risk spillovers in the non-ferrous metal futures market.

The market quality of commodity futures markets

AbstractTo study the market quality of commodity futures markets, we construct a commodity futures market quality index from the perspective of liquidity, efficiency, and volatility. Based on the market quality index, the Chinese commodity futures market operates steadily. The metal futures market is more efficient and stable than the market for agricultural futures. The Chinese commodity futures market is less liquid and more volatile than the U.S. market. We examine the determinants of market quality and find that macroeconomic variables and futures market contracts are significantly related to the market quality of Chinese commodity futures.

Does economic policy uncertainty matter for commodity market in China? Evidence from quantile regression

ABSTRACTThis paper investigates the effect of economic policy uncertainty (EPU) on China’s agricultural and metal commodity futures returns across quantiles. We address this issue using the panel quantile regression approach, which allows for a more complete analysis of various conditions in the commodity market (i.e. bearish, normal, and bullish markets). Our empirical results reveal that domestic EPU shocks have a significantly negative effect on agricultural futures returns in bearish markets and a significantly positive effect on metal futures returns in bullish markets. The impacts of both domestic and U.S. EPU shocks on commodity markets are heterogeneous across quantiles and are sector specific. Additionally, by isolating positive and negative EPU shocks, the regression and test results indicate an asymmetric response of commodity futures prices in bullish markets. Moreover, our findings indicate that the metal futures market has a higher financialisation level than the agricultural futures market. The findings can be utilized by policymakers and investors.

Realized volatility spillovers in the non-ferrous metal futures market

In contrast to energy and precious metals commodities, relatively little is known about the volatility dynamics of base (or industrial) metals commodities. To address this deficiency, this paper employs a multivariate heterogeneous autoregressive (HAR) model to consider the volatility spillovers between the five of the most liquid and important non-ferrous metals contracts (aluminium, copper, lead, nickel, and zinc) traded on the London Metal Exchange using intraday data over the period June 2006–December 2012. This period encompasses both the surge in commodities prices associated with the burgeoning industrial demand of many emerging economies, especially China, resulting in market peaks in May 2007 and April 2008 and the subsequent negative reaction of base metals markets to the collapse of stock markets during the recent global financial crisis. The results show that the volatility series of other industrial metals appear to contain useful incremental information for future price volatility. However, the own dynamics are often sufficient for describing most future daily and weekly volatility, with the most pronounced volatility spillovers identified in the longer term. Combined together, the results in this study provide useful findings for exporter and importer countries dealing with the continuing volatility in these industrially important commodity markets.

Long memory of price–volume correlation in metal futures market based on fractal features

An empirical test on long memory between price and trading volume of China metals futures market was given with MF-DCCA method. The empirical results show that long memory feature with a certain period exists in price–volume correlation and a further proof was given by analyzing the source of multifractal feature. The empirical results suggest that it is of important practical significance to bring the fractal market theory and other nonlinear theory into the analysis and explanation of the behavior in metal futures market.

Application of a TGARCH-wavelet neural network to arbitrage trading in the metal futures market in China

For high-frequency statistical arbitrage, setting the proper trading threshold for each trading period is extremely important. We find that the optimal short-run trading threshold series in the Chinese metal futures market demonstrates chaotic characteristics. Therefore, we propose a new statistical arbitrage model in which a TGARCH model is applied to capture short-term price cointegration and asymmetric price spread standard deviations between futures contracts and a wavelet neural network is utilized to predict trading thresholds. Backtesting results demonstrate that the new model provides more stable and accurate trading thresholds and therefore generates more profits compared with the backpropagation neural network and historically optimal models. Potential topics for further study, including adjustments of the model to fit different market situations and the impact of transaction costs, are discussed.

Multifractal features of metal futures market based on multifractal detrended cross‐correlation analysis

PurposeRecently, many scholars have been paying more attention to studying the existence and application of multifractality. However, most researches concentrate on studying multifractal features of returns or volume separately, and ignore the correlation between them. The purpose of this paper, therefore, is to give an empirical test on multifractal features of price‐volume correlation in China metal futures market and then to conduct a comparative analysis from time and space dimensions, in order to better understand metals futures market behavior.Design/methodology/approachThis paper gives an empirical test by means of multifractal detrended cross‐correlation analysis (MF‐DCCA) approach, which is a technique employed in statistical physics to detect multifractal features of two cross‐correlated nonstationary time series.FindingsEmpirical results show that the price‐volume correlation in China metal futures market is multifractal and that long range correlation and non‐Gaussian probability distribution are the main reasons for the existence of multifractality. Also, a comparative analysis is conducted and it is found that although China metal futures market is becoming more and more effective, the effectiveness is lower than that in mature LME metal futures markets. The futures market still needs further development.Originality/valueThe paper's conclusions would help to understand the nonlinear dependency relationship and potential dynamics mechanism in price‐volume correlation.