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Price explosiveness in nonferrous metal futures markets

Richie Ruchuan Ma and Tao Xiong

Economic Modelling, 2021, vol. 94, issue C, 75-90

Abstract: Whether high price volatility could reflect market fundamentals is still open to debate, although the literature has established the presence of price explosiveness in many financial markets. Using the futures prices of six dominant nonferrous metals in 2014–2018, we investigate the characteristics and determinants of price explosiveness in nonferrous metal futures markets. We find that during the past 15 years, the markets have displayed price explosiveness and they have limited ability to adjust to price changes. High interest rates would trigger price explosiveness through high investment cost, while a high exchange rate would decrease it by increasing nonferrous metal availability. An exuberant stock market would reduce price explosiveness by migrating risk from nonferrous metal markets. A booming economic environment causes price explosiveness through increased demand for nonferrous metals. Our findings refute the notion that market fundamentals can exclusively drive futures prices, even in the context of high price volatility.

Keywords: Bubble strength; Bubbles; Futures market; Nonferrous metals; Price explosiveness (search for similar items in EconPapers)
JEL-codes: G13 G14 Q31 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:94:y:2021:i:c:p:75-90

DOI: 10.1016/j.econmod.2020.09.012

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