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Asymmetric Adjustments in Oil and Metals Markets

  • Shawkat Hammoudeh
  • Li-Hsueh Chen
  • Bassam Fattouh

Using the threshold cointegration methods, Enders-Siklos (2001) and Hansen-Seo (2002), this study finds that spot and futures prices in each of the four widely traded commodities, copper, gold, WTI oil and silver are asymmet­rically co-integrated. However, the asymmetric adjustment to the long-run equi­librium differs among those commodities, reflecting different profitable opportu­nities. The adjustment is faster for copper after positive shocks, while it is faster for the safe havens oil, gold and silver after negative shocks. It is more the spot and not the futures price for the four commodities that focuses in its adjustment on long-run factors. In sum, the adjustments imply different trading strategies, depending on whether the faster adjustment happened from above or below the threshold.

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Article provided by International Association for Energy Economics in its journal The Energy Journal.

Volume (Year): Volume 31 (2010)
Issue (Month): Number 4 ()
Pages: 183-204

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Handle: RePEc:aen:journl:2010v31-04-a09
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