Commonality in the LME aluminium and copper volatility processes through a Figarch lens

Isabel Figuerola-Ferretti and Christopher L. Gilbert

DEE - Working Papers. Business Economics. WB from Universidad Carlos III de Madrid. Departamento de Economía de la Empresa

Abstract: We consider dynamic representation of spot and three month aluminium and copper volatilities. These are the two most important metals traded in the London Metal Exchange (LME). They share common business cycle factors and are traded under identical contract specifications. We apply the bivariate FIGARCH model which allows parsimonious representation of long memory volatility processes. Our results show that spot and three month aluminium and copper volatilities follow long memory processes, that they exhibit a common degree of fractional integration and that the processes are symmetric. However, there is no evidence that the processes are fractionally cointegrated. This high degree of commonality may result from the common LME trading process.

Keywords: Volatility; Persistence; Fractional; cointegration; Commodity; futures (search for similar items in EconPapers)
Date: 2007-02
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