Power ARCH Modelling of Commodity Futures Data on the London Metal Exchange
A recent addition to the ARCH family of econometric models was introduced by Ding, Granger and Engle (1993) wherein the power term by which the data is transformed was estimated within the model rather than being imposed by the researcher. This paper considers the ability of the Power GARCH class of models to capture the stylised features of volatility in a range of commodity futures prices traded on the London Metals Exchange. The results of this procedure suggest that asymmetric effects are not generally present in the LME futures data. Further, unlike stock market data which is well described by the model, futures data is not as well described by the APGARCH model. Nested within the APGARCH model are several other models from the ARCH family. This paper uses the standard log likelihood procedure to conduct pairwise comparisons of the relative merits of each and the results suggest that it is the Taylor GARCH model which performs best.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||1998|
|Contact details of provider:|| Postal: Centre in Finance, Department of Economics and Finance, Faculty of Business, RMIT GPO Box 2476V Melbourne, Vic 3000 Australia.|
Phone: +61 3 9925 5858
Fax: +61 3 9925 5986
Web page: http://www.rmit.edu.au/bus/ecofin
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brooks, Robert D. & Faff, Robert W. & McKenzie, Michael D. & Mitchell, Heather, 2000. "A multi-country study of power ARCH models and national stock market returns," Journal of International Money and Finance, Elsevier, vol. 19(3), pages 377-397, June.
- John Barkoulas & Christopher F. Baum, 1996.
"Time-Varying Risk Premia in the Foreign Currency Futures Basis,"
Boston College Working Papers in Economics
281., Boston College Department of Economics.
- Christopher F. Baum & John Barkoulas, 1996. "Time‐varying risk premia in the foreign currency futures basis," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 16(7), pages 735-755, October.
- Tim Bollerslev, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
EERI Research Paper Series
EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Laulajainen, Risto, 1995. "The geographical reach of a commodity exchange : The London metal exchange and beyond," Resources Policy, Elsevier, vol. 21(2), pages 133-141, June.
- Benoit Mandelbrot, 1963.
"The Variation of Certain Speculative Prices,"
The Journal of Business,
University of Chicago Press, vol. 36, pages 1-394.
- Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
- Ding, Zhuanxin & Granger, Clive W. J., 1996. "Modeling volatility persistence of speculative returns: A new approach," Journal of Econometrics, Elsevier, vol. 73(1), pages 185-215, July.
- Zakoian, Jean-Michel, 1994. "Threshold heteroskedastic models," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 931-955, September.
- Nelson, Daniel B., 1990. "ARCH models as diffusion approximations," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 7-38.
- Seung‐Ryong Yang & B. Wade Brorsen, 1993. "Nonlinear dynamics of daily futures prices: Conditional heteroskedasticity or chaos?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 13(2), pages 175-191, 04.
- Cecchetti, Stephen G & Cumby, Robert E & Figlewski, Stephen, 1988.
"Estimation of the Optimal Futures Hedge,"
The Review of Economics and Statistics,
MIT Press, vol. 70(4), pages 623-630, November.
- Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-547, August.
- Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
- Kroner, Kenneth F. & Sultan, Jahangir, 1993. "Time-Varying Distributions and Dynamic Hedging with Foreign Currency Futures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(04), pages 535-551, December.
- Sephton, Peter S. & Cochrane, Donald K., 1990. "A note on the efficiency of the London metal exchange," Economics Letters, Elsevier, vol. 33(4), pages 341-345, August.
- Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993.
" On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks,"
Journal of Finance,
American Finance Association, vol. 48(5), pages 1779-1801, December.
- Lawrence R. Glosten & Ravi Jagannathan & David E. Runkle, 1993. "On the relation between the expected value and the volatility of the nominal excess return on stocks," Staff Report 157, Federal Reserve Bank of Minneapolis.
- MacDonald, Ronald & Taylor, Mark P, 1988. "Metals Prices, Efficiency and Cointegration: Some Evidence from the London Metal Exchange," Bulletin of Economic Research, Wiley Blackwell, vol. 40(3), pages 235-239, June.
- Geoffrey Heal & Michael Barrow, 1980. "The Relationship between Interest Rates and Metal Price Movements," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 161-181.
- MacDonald, Ronald & Taylor, Mark P, 1988. "Testing Rational Expectations and Efficiency in the London Metal Exchange," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 50(1), pages 41-52, February.
- Tse, Y. K. & Tsui, Albert K. C., 1997. "Conditional volatility in foreign exchange rates: Evidence from the Malaysian ringgit and Singapore dollar," Pacific-Basin Finance Journal, Elsevier, vol. 5(3), pages 345-356, July.
- Hsieh, David A & Kulatilaka, Nalin, 1982. " Rational Expectations and Risk Premia in Forward Markets: Primary Metals at the London Metals Exchange," Journal of Finance, American Finance Association, vol. 37(5), pages 1199-1207, December.
- Hall, S G, 1991. "An Application of the Stochastic GARCH-in-Mean Model to Risk Premia in the London Metal Exchange," The Manchester School of Economic & Social Studies, University of Manchester, vol. 59(0), pages 57-71, Supplemen.
- Baillie, Richard T & Myers, Robert J, 1991. "Bivariate GARCH Estimation of the Optimal Commodity Futures Hedge," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(2), pages 109-124, April-Jun.
- Baillie, Richard T. & Bollerslev, Tim & Mikkelsen, Hans Ole, 1996.
"Fractionally integrated generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics,
Elsevier, vol. 74(1), pages 3-30, September.
- Tom Doan, "undated". "RATS programs to replicate Baillie, Bollerslev, Mikkelson FIGARCH results," Statistical Software Components RTZ00009, Boston College Department of Economics.
- Michael McKenzie, 1997. "ARCH modelling of Australian bilateral exchange rate data," Applied Financial Economics, Taylor & Francis Journals, vol. 7(2), pages 147-164.
- Tae H. Park & Lorne N. Switzer, 1995. "Bivariate GARCH estimation of the optimal hedge ratios for stock index futures: A note," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 15(1), pages 61-67, 02.
- Higgins, Matthew L & Bera, Anil K, 1992. "A Class of Nonlinear ARCH Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(1), pages 137-158, February.
When requesting a correction, please mention this item's handle: RePEc:fth:melrfi:98-3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
If references are entirely missing, you can add them using this form.