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The Role of Outliers and Oil Price Shocks on Volatility of Metal Prices

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  • Niaz Bashiri Behmiri

    (Fondazione Eni Enrico Mattei (FEEM))

  • Matteo Manera

    (University of Milan-Bicocca and FEEM)

Abstract

This study investigates the price volatility of metals, using the GARCH and GJR models. First we examine the persistence of volatility and the leverage effect across metal markets taking into account the presence of outliers, and second we estimate the effects of oil price shocks on the price volatility of metals, allowing for the asymmetric responses. We use daily spot prices for the selected metals, including aluminum, copper, lead, nickel, tin, zinc, gold, silver, palladium and platinum. The main findings indicate that, returns show a high degree of volatility persistence before and after correcting outliers, outliers bias the parameters estimation of the GARCH-type models, and removing outliers improves the performance of models in capturing volatility. However in a comparison, Student-t distribution outperforms the approach of correcting outliers in capturing volatility. Moreover, we find the existence of inverse leverage effect for seven metals, the leverage effect for copper and no leverage effect for nickel and palladium. Finally, price volatility of metals differently reacts to oil price shocks and there is an asymmetric reaction of volatility to oil price shocks for seven metals.

Suggested Citation

  • Niaz Bashiri Behmiri & Matteo Manera, 2015. "The Role of Outliers and Oil Price Shocks on Volatility of Metal Prices," Working Papers 2015.77, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2015.77
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    More about this item

    Keywords

    Metals; Commodities; Volatility; Oil Price; Outliers;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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