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Has Futures Trading Affected the Volatility of Aluminium Transactions Prices?

Author

Listed:
  • Isabel Figuerola-Ferretti

    (Queen Mary, University of London)

  • Christopher L. Gilbert

    (Vrije Universiteit Amsterdam)

Abstract

We consider how aluminium transactions prices have been affected by the development of futures trading in aluminium. Using a series for transactions prices constructed from a trade journal, we establish that both this series and the exchange cash price may be regarded as error-ridden measures of the same latent variables. Furthermore, the error associated with the exchange price has declined over time. Tests provide weak evidence for a modest increase in volatility in the post-producer pricing period, but a VAR model suggests that this may be accounted for by the rapidly decaying "frothiness" of the exchange price, now increasingly reflected in transactions prices.

Suggested Citation

  • Isabel Figuerola-Ferretti & Christopher L. Gilbert, 2001. "Has Futures Trading Affected the Volatility of Aluminium Transactions Prices?," Working Papers 432, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:432
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    File URL: https://www.qmul.ac.uk/sef/media/econ/research/workingpapers/2001/items/wp432.pdf
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    References listed on IDEAS

    as
    1. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-738, August.
    2. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    3. De Long, J Bradford, et al, 1990. "Positive Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance, American Finance Association, vol. 45(2), pages 379-395, June.
    4. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    5. Bray, Margaret M, 1981. "Futures Trading, Rational Expectations, and the Efficient Markets Hypothesis," Econometrica, Econometric Society, vol. 49(3), pages 575-596, May.
    6. Ali F. Darrat & Shafiqur Rahman, 1995. "Has futures trading activity caused stock price volatility?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 15(5), pages 537-557, August.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Isabel Figuerola-Ferretti, 2005. "Prices and production cost in aluminium smelting in the short and the long run," Applied Economics, Taylor & Francis Journals, vol. 37(8), pages 917-928.

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    More about this item

    Keywords

    Aluminium; Transaction prices; Futures trading; Price volatility;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics

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