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An R-vine copula analysis of non-ferrous metal futures with application in Value-at-Risk forecasting

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  • Han, Xuyuan
  • Liu, Zhenya
  • Wang, Shixuan

Abstract

We employ the R-vine copula approach to study the dependence structure between non-ferrous metal commodity futures on the London Metal Exchange, focusing on the comparison before and after structural breaks. We find that the center of the dependence structure between non-ferrous metal futures shifts from copper to zinc after the first structural break in 2008 and moves back to copper after the second structural break in 2014. Additionally, we document that non-ferrous metals experienced an increase in the level of integration and tail dependence between 2008 and 2014, while this increase is shown to cease after 2014. We further develop an R-vine copula-based method for forecasting Value-at-Risk, and the backtesting results show superior forecasting accuracy over the benchmark methods. Our study is useful for market participants seeking to enhance their risk management for non-ferrous metals.

Suggested Citation

  • Han, Xuyuan & Liu, Zhenya & Wang, Shixuan, 2022. "An R-vine copula analysis of non-ferrous metal futures with application in Value-at-Risk forecasting," Journal of Commodity Markets, Elsevier, vol. 25(C).
    • Handle: RePEc:eee:jocoma:v:25:y:2022:i:c:s2405851321000222
    DOI: 10.1016/j.jcomm.2021.100188
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    Cited by:

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    More about this item

    Keywords

    R-vine copula; Dependence structure; Financial crisis; Value-at-Risk; Structural breaks; Tail dependence;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics

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