Consumption- and speculation-led change in demand for oil and the response of base metals: A Markov-switching approach

Md Rafayet Alam, Md. Forhad and Nilesh B. Sah

Finance Research Letters, 2022, vol. 47, issue PB

Abstract: We examine how base metal returns respond to various oil shocks applying Markov-switching models. We find that both consumption-led and speculation-led increase in demand for oil increase metal returns while an increase in oil supply decreases metal returns. However, the effects of oil supply shocks and speculation-led oil demand shocks are statistically significant mostly in the high volatility regimes indicating a stronger link between oil and base metals in the volatile markets. Our novel finding of regime-dependent relation between oil and metal markets has important implications for both investors and policy makers.

Keywords: Base metal returns; Oil shocks; Markov-switching (search for similar items in EconPapers)
JEL-codes: Q02 Q4 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322000964

DOI: 10.1016/j.frl.2022.102783

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