Testing for mild explosivity and bubbles in LME non-ferrous metals prices

Isabel Figuerola-Ferretti, Christopher L. Gilbert, Roderick McCrorie

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    28 Citations (Scopus)
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    Abstract

    This paper applies the mildly explosive/multiple bubbles testing methodology developed by Phillips, Shi and Yu (2015a, International Economic Review, forthcoming) to examine the recent time series behaviour of the main six London Metal Exchange (LME) non-ferrous metals prices. We detect periods of mild explosivity in the cash and three-month futures price series in each of copper, nickel, lead, zinc and tin, but not in aluminium. We argue that convenience yield, though the formal counterpart to dividend yield in commodity markets, is not a useful basis on which to assess whether observed explosivity is indicative of bubbles (namely, departures of prices from their fundamental values). We construct other measures that provide evidence that suggests the observed explosivity in the non-ferrous metals market can be associated with tight physical markets.
    Original languageEnglish
    Pages (from-to)763-782
    Number of pages38
    JournalJournal of Time Series Analysis
    Volume36
    Issue number5
    Early online date3 Feb 2015
    DOIs
    Publication statusPublished - Sept 2015

    Keywords

    • Mildly explosive process
    • Recursive regression
    • Generalized sup ADF test
    • Economic bubbles
    • Commodity prices
    • Non-ferrous metals

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