IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/47028.html
   My bibliography  Save this paper

A study on the Price Behavior of Base Metals traded in India

Author

Listed:
  • Sinha, Pankaj
  • Mathur, Kritika

Abstract

This study looks into the price behavior of five base metals – aluminum, copper, zinc, lead and nickel traded on Multi Commodity Exchange (MCX), using near month futures contracts and spot contracts for the period from November 2007 to January 2013. To assess the impact of the recent Global Financial Crisis on trading of base metals, the price volatility of the base metals has been examined using GARCH models. The paper also studies the effect of implied volatility of equity market, measured by India VIX on the price volatility of the five base metals. The findings of the study suggest that there is presence of short term persistence in price volatility of the metals, and the daily price volatility of base metals is influenced by the Global Financial Crisis. The implied volatility in equity market is also found to affect the price volatility of the metals. Thus, the paper gives important evidence in support of the introduction of option contracts on base metals in Indian Commodity Markets, since option contracts are priced considering the price volatility of the underlying asset.

Suggested Citation

  • Sinha, Pankaj & Mathur, Kritika, 2013. "A study on the Price Behavior of Base Metals traded in India," MPRA Paper 47028, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:47028
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/47028/1/MPRA_paper_47028.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Michael McKenzie & Heather Mitchell & Robert Brooks & Robert Faff, 2001. "Power ARCH modelling of commodity futures data on the London Metal Exchange," The European Journal of Finance, Taylor & Francis Journals, vol. 7(1), pages 22-38.
    2. Tully, Edel & Lucey, Brian M., 2007. "A power GARCH examination of the gold market," Research in International Business and Finance, Elsevier, vol. 21(2), pages 316-325, June.
    3. Wei, Yu & Wang, Yudong & Huang, Dengshi, 2010. "Forecasting crude oil market volatility: Further evidence using GARCH-class models," Energy Economics, Elsevier, vol. 32(6), pages 1477-1484, November.
    4. Jean-Thomas Bernard & Lynda Khalaf & Maral Kichian & Sebastien Mcmahon, 2008. "Forecasting commodity prices: GARCH, jumps, and mean reversion," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 27(4), pages 279-291.
    5. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    6. McMillan, David G. & Speight, Alan E. H., 2001. "Non-ferrous metals price volatility: a component analysis," Resources Policy, Elsevier, vol. 27(3), pages 199-207, September.
    7. Brunetti, Celso & Gilbert, Christopher L., 1995. "Metals price volatility, 1972-1995," Resources Policy, Elsevier, vol. 21(4), pages 237-254, December.
    8. Hammoudeh, Shawkat & Yuan, Yuan, 2008. "Metal volatility in presence of oil and interest rate shocks," Energy Economics, Elsevier, vol. 30(2), pages 606-620, March.
    9. Connolly, Robert & Stivers, Chris & Sun, Licheng, 2005. "Stock Market Uncertainty and the Stock-Bond Return Relation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(1), pages 161-194, March.
    10. Clinton Watkins & Michael McAleer, 2003. "Pricing of Non-ferrous Metals Futures on the London Metal Exchange," CIRJE F-Series CIRJE-F-213, CIRJE, Faculty of Economics, University of Tokyo.
    11. Akgiray, Vedat, et al, 1991. "Conditional Dependence in Precious Metal Prices," The Financial Review, Eastern Finance Association, vol. 26(3), pages 367-386, August.
    12. Hyun J. Jin & Darren L. Frechette, 2004. "Fractional Integration in Agricultural Futures Price Volatilities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(2), pages 432-443.
    13. Arouri, Mohamed El Hedi & Hammoudeh, Shawkat & Lahiani, Amine & Nguyen, Duc Khuong, 2012. "Long memory and structural breaks in modeling the return and volatility dynamics of precious metals," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 207-218.
    14. Banerjee, Prithviraj S. & Doran, James S. & Peterson, David R., 2007. "Implied volatility and future portfolio returns," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3183-3199, October.
    15. Sadorsky, Perry, 2006. "Modeling and forecasting petroleum futures volatility," Energy Economics, Elsevier, vol. 28(4), pages 467-488, July.
    16. Morales, Lucía & Andreosso-O'Callaghan, Bernadette, 2011. "Comparative analysis on the effects of the Asian and global financial crises on precious metal markets," Research in International Business and Finance, Elsevier, vol. 25(2), pages 203-227, June.
    17. Cochran, Steven J. & Mansur, Iqbal & Odusami, Babatunde, 2012. "Volatility persistence in metal returns: A FIGARCH approach," Journal of Economics and Business, Elsevier, vol. 64(4), pages 287-305.
    18. Ahmed A. A. Khalifa & Hong Miao & Sanjay Ramchander, 2011. "Return distributions and volatility forecasting in metal futures markets: Evidence from gold, silver, and copper," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 31(1), pages 55-80, January.
    19. Seung-Ryong Yang & B. Wade Brorsen, 1992. "Nonlinear Dynamics of Daily Cash Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(3), pages 706-715.
    20. Kang, Sang Hoon & Kang, Sang-Mok & Yoon, Seong-Min, 2009. "Forecasting volatility of crude oil markets," Energy Economics, Elsevier, vol. 31(1), pages 119-125, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rakesh Shahani & Utkarsh Singhal, 2023. "Do efficient commodity markets co-move: evidence from Indian base metals market," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 36(3), pages 413-425, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chkili, Walid & Hammoudeh, Shawkat & Nguyen, Duc Khuong, 2014. "Volatility forecasting and risk management for commodity markets in the presence of asymmetry and long memory," Energy Economics, Elsevier, vol. 41(C), pages 1-18.
    2. repec:ipg:wpaper:2013-009 is not listed on IDEAS
    3. repec:ipg:wpaper:9 is not listed on IDEAS
    4. repec:ipg:wpaper:201409 is not listed on IDEAS
    5. Walid Chkili & Shawkat Hammoudeh & Duc Khuong Nguyen, 2013. "Long memory and asymmetry in the volatility of commodity markets and Basel Accord: choosing between models," Working Papers 2013-9, Department of Research, Ipag Business School.
    6. Cochran, Steven J. & Mansur, Iqbal & Odusami, Babatunde, 2012. "Volatility persistence in metal returns: A FIGARCH approach," Journal of Economics and Business, Elsevier, vol. 64(4), pages 287-305.
    7. Chevallier, Julien & Ielpo, Florian, 2017. "Investigating the leverage effect in commodity markets with a recursive estimation approach," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 763-778.
    8. Arouri, Mohamed El Hedi & Hammoudeh, Shawkat & Lahiani, Amine & Nguyen, Duc Khuong, 2012. "Long memory and structural breaks in modeling the return and volatility dynamics of precious metals," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 207-218.
    9. Onder Buberkoku, 2018. "Examining the Value-at-risk Performance of Fractionally Integrated GARCH Models: Evidence from Energy Commodities," International Journal of Economics and Financial Issues, Econjournals, vol. 8(3), pages 36-50.
    10. Cochran, Steven J. & Mansur, Iqbal & Odusami, Babatunde, 2015. "Equity market implied volatility and energy prices: A double threshold GARCH approach," Energy Economics, Elsevier, vol. 50(C), pages 264-272.
    11. Bentes, Sonia R., 2015. "Forecasting volatility in gold returns under the GARCH, IGARCH and FIGARCH frameworks: New evidence," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 438(C), pages 355-364.
    12. Bentes, Sonia R., 2016. "Long memory volatility of gold price returns: How strong is the evidence from distinct economic cycles?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 443(C), pages 149-160.
    13. Umar, Zaghum & Nasreen, Samia & Solarin, Sakiru Adebola & Tiwari, Aviral Kumar, 2019. "Exploring the time and frequency domain connectedness of oil prices and metal prices," Resources Policy, Elsevier, vol. 64(C).
    14. Gil-Alana, Luis A. & Tripathy, Trilochan, 2014. "Modelling volatility persistence and asymmetry: A Study on selected Indian non-ferrous metals markets," Resources Policy, Elsevier, vol. 41(C), pages 31-39.
    15. Balcilar, Mehmet & Ozdemir, Zeynel Abidin, 2019. "The volatility effect on precious metals price returns in a stochastic volatility in mean model with time-varying parameters," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 534(C).
    16. Charlot, Philippe & Marimoutou, Vêlayoudom, 2014. "On the relationship between the prices of oil and the precious metals: Revisiting with a multivariate regime-switching decision tree," Energy Economics, Elsevier, vol. 44(C), pages 456-467.
    17. Auer, Benjamin R., 2014. "Daily seasonality in crude oil returns and volatilities," Energy Economics, Elsevier, vol. 43(C), pages 82-88.
    18. Sinha, Pankaj & Mathur, Kritika, 2016. "Impact of Global Financial Crisis and Implied Volatility in the Equity Market on Gold Futures Traded on Multi Commodity Exchange, India," MPRA Paper 72966, University Library of Munich, Germany.
    19. Kang, Sang Hoon & Yoon, Seong-Min, 2013. "Modeling and forecasting the volatility of petroleum futures prices," Energy Economics, Elsevier, vol. 36(C), pages 354-362.
    20. Wang, Yudong & Wu, Chongfeng & Wei, Yu, 2011. "Can GARCH-class models capture long memory in WTI crude oil markets?," Economic Modelling, Elsevier, vol. 28(3), pages 921-927, May.
    21. Chen, Hongtao & Liu, Li & Li, Xiaolei, 2018. "The predictive content of CBOE crude oil volatility index," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 492(C), pages 837-850.
    22. Lang, Korbinian & Auer, Benjamin R., 2020. "The economic and financial properties of crude oil: A review," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    23. Hasanov, Akram Shavkatovich & Poon, Wai Ching & Al-Freedi, Ajab & Heng, Zin Yau, 2018. "Forecasting volatility in the biofuel feedstock markets in the presence of structural breaks: A comparison of alternative distribution functions," Energy Economics, Elsevier, vol. 70(C), pages 307-333.

    More about this item

    Keywords

    Option contracts; Base metals; Volatility; Futures contract; VIX;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:47028. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.