Has Futures Trading Affected the Volatility of Aluminium Transactions Prices?

Isabel Figuerola-Ferretti and Christopher L. Gilbert
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Isabel Figuerola-Ferretti: Queen Mary, University of London
Christopher L. Gilbert: Vrije Universiteit Amsterdam

No 432, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: We consider how aluminium transactions prices have been affected by the development of futures trading in aluminium. Using a series for transactions prices constructed from a trade journal, we establish that both this series and the exchange cash price may be regarded as error-ridden measures of the same latent variables. Furthermore, the error associated with the exchange price has declined over time. Tests provide weak evidence for a modest increase in volatility in the post-producer pricing period, but a VAR model suggests that this may be accounted for by the rapidly decaying "frothiness" of the exchange price, now increasingly reflected in transactions prices.

Keywords: Aluminium; Transaction prices; Futures trading; Price volatility (search for similar items in EconPapers)
JEL-codes: G1 L61 (search for similar items in EconPapers)
Date: 2001-02-01
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:qmw:qmwecw:432

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