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Cross-correlations between spot and futures markets of nonferrous metals

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  • Liu, Li
  • Wang, Yudong

Abstract

In this paper, we investigate cross-correlations between nonferrous metal spot and futures markets using detrended cross-correlation analysis (DCCA). We find the existence of significant cross-correlations for both return and volatility series. The DCCA-based cross-correlation coefficients are very high and decrease with the futures maturity increases. Using the multifractal extension of DCCA, the multifractality in cross-correlations is revealed. We also detect the source of cross-correlations between spot and futures markets. We use the vector error correction model and bivariate BEKK–GARCH to model the interactions between returns and volatilities of spot and futures, respectively. Our findings indicate that the volatility spillover between spot and futures markets contributes major to nonlinear cross-correlation while the contribution of mean spillover is very minor.

Suggested Citation

  • Liu, Li & Wang, Yudong, 2014. "Cross-correlations between spot and futures markets of nonferrous metals," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 400(C), pages 20-30.
  • Handle: RePEc:eee:phsmap:v:400:y:2014:i:c:p:20-30
    DOI: 10.1016/j.physa.2014.01.009
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    1. repec:eee:phsmap:v:490:y:2018:i:c:p:1555-1574 is not listed on IDEAS
    2. Baumöhl, Eduard & Kočenda, Evžen & Lyócsa, Štefan & Výrost, Tomáš, 2018. "Networks of volatility spillovers among stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 490(C), pages 1555-1574.
    3. Ruan, Qingsong & Wang, Yao & Lu, Xinsheng & Qin, Jing, 2016. "Cross-correlations between Baltic Dry Index and crude oil prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 453(C), pages 278-289.
    4. Zhang, Tao & Ma, Guofeng & Liu, Guangsheng, 2015. "Nonlinear joint dynamics between prices of crude oil and refined products," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 419(C), pages 444-456.
    5. Liu, Xueyong & An, Haizhong & Li, Huajiao & Chen, Zhihua & Feng, Sida & Wen, Shaobo, 2017. "Features of spillover networks in international financial markets: Evidence from the G20 countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 479(C), pages 265-278.
    6. Liu, Li & Ma, Guofeng, 2014. "Cross-correlation between crude oil and refined product prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 413(C), pages 284-293.

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