Cointegration between the structure of copper futures prices and Brexit

Galán-Gutiérrez, Juan Antonio; García, Rodrigo Martín

doi:10.1016/j.resourpol.2021.101998

Cited by 4 publications

(1 citation statement)

References 67 publications

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“…Copper has been chosen for this study for many reasons. First, it is one of the most financialized base metals priced on the Shanghai Futures Exchange (SHFE), the London Metal Exchange (LME), and the New York Commodity Exchange (COMEX), which are commonly used for speculative strategies [50]. Second, it has a large influence at different economic levels, for example in rich economies, such as Chile's, and in the development of many others [51].…”

Section: Cointegration and Co-movements: Coppermentioning

confidence: 99%

Fundamentals vs. Financialization during Extreme Events: From Backwardation to Contango, a Copper Market Analysis during the COVID-19 Pandemic

Galán-Gutiérrez

García

2022

Mathematics

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The COVID-19 pandemic has shocked commodities markets in general and base metals markets in particular. The market turmoil made it very difficult to act in the physical market, given the impossibility of establishing or maintaining physical and/or financial positions in a context of high uncertainty. This has happened both in different moments of the development of the pandemic and in geographically different frames. That is why this contribution tries to explain the evolution of warehouses and copper price structure and its utility for hedging in the context of an extreme event. To that end, Granger causality has been used to test whether, during the COVID-19 first wave, the pandemic evolution is cointegrated on one hand with copper futures price structure and, on the other, with the incremental levels of copper stocks. Using 102 official copper prices on London Metal Exchange (LME) trading days, between 13 January 2020 and 5 June 2020 (once the most severe effects of the first wave had been overcome), it was demonstrated that, during the first COVID-19 wave in Europe, the weekly death index variation was cointegrated with the copper future price structure. It has been proven that, in this timelapse, contango in futures price structure has increased its value, and the incremental levels of stock in copper LME warehouses are linked with a stable contango structure. In short, we find that fundamental market effects predominate, in a context in which commodities used to be more financialized. This leads market players, such as traders, miners, and transformers, to move exposures in their hedging structures, under such extreme event situations, in favor of or against either contango or backwardation, so as to derive value from them.

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Section: Cointegration and Co-movements: Coppermentioning

confidence: 99%

Fundamentals vs. Financialization during Extreme Events: From Backwardation to Contango, a Copper Market Analysis during the COVID-19 Pandemic

Galán-Gutiérrez

García

2022

Mathematics

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Cointegration between high base metals prices and backwardation: Getting ready for the metals super-cycle

2023

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Multi‐Frequency Information Flows between Global Commodities and Uncertainties: Evidence from COVID‐19 Pandemic

et al. 2022

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Owing to the adverse impact of the COVID-19 pandemic on world economies, it is expected that information flows between commodities and uncertainties have been transformed. Accordingly, the resulting twisted risk among commodities and related uncertainties is presumed to rise during stressed market conditions. Therefore, investors feel pressured to find safe haven investments during the pandemic. For this reason, we model a mixture of asymmetric and non-linear bi-directional causality between global commodities and uncertainties at different frequencies through the information flow theory. Consequently, we utilise the complete ensemble empirical mode decomposition with adaptive noise (CEEMDAN) and the Rényi effective transfer entropy techniques to establish the dynamic flow of information. The intrinsic mode functions (IMFs) from the CEEMDAN are carefully extracted into multi-frequencies through cluster analysis to reconstruct the series into high, medium, and low frequencies in addition to the residue. We utilise daily data from December 31st, 2019, to March 31st, 2021, to provide insights into the COVID-19 pandemic. The correlation coefficients and variances demonstrate that the high frequency (IMFs 1–4) which measures the short-term dynamics is the dominant frequency, suggesting short-lived market fluctuations relative to real economic growth for institutional investors. Moreover, outcomes from the multi-frequency entropy indicate a negative bi-directional causality of information flow between global commodities and uncertainties, especially in the long term. Generally, the findings present pertinent inferences for portfolio diversification, policy decisions, and risk management schemes for global commodities and markets volatilities. We, therefore, advocate that market volatilities act as effective hedges for global commodities, and they clearly act as balancing assets rather than substitutes in the long-term dynamics of the COVID-19 pandemic. Investors who delayed in investing within financial markets of commodities and market volatilities are likely to minimise their portfolio risks.

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Cointegration between the structure of copper futures prices and Brexit

Cited by 4 publications

References 67 publications

Fundamentals vs. Financialization during Extreme Events: From Backwardation to Contango, a Copper Market Analysis during the COVID-19 Pandemic

Fundamentals vs. Financialization during Extreme Events: From Backwardation to Contango, a Copper Market Analysis during the COVID-19 Pandemic

Cointegration between high base metals prices and backwardation: Getting ready for the metals super-cycle

Multi‐Frequency Information Flows between Global Commodities and Uncertainties: Evidence from COVID‐19 Pandemic

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