Multi-scale comovement of the dynamic correlations between copper futures and spot prices

Hui Yu, Yinghui Ding, Qingru Sun, Xiangyun Gao, Xiaoliang Jia, Xinya Wang and Sui Guo

Resources Policy, 2021, vol. 70, issue C

Abstract: Correlations between copper futures and spot prices are dynamic and show various fluctuation characteristics over different time horizons. This creates a challenge for industrial policy, product pricing strategy, and portfolio management. Investigating the multiscale comovement of the dynamic correlations between copper futures and spot prices can provide a useful periodicity-based reference for a copper price adjustment strategy and portfolio management. This study uses grey correlation analysis and wavelet analysis to study the comovement characteristics of copper futures-spot price correlations on a scale by scale basis. The Shanghai Metal Exchange copper spot prices and copper futures prices in three main copper markets (London, New York, and Shanghai) are used as sample data. Our main findings are as follows. First, the dynamic correlation of copper futures and spot prices vary at different scales. Second, the fluctuation of copper future-spot price correlations is obviously strong in the daily, quarterly, and annual periodicity. For policymakers and manufacturers, their daily, quarterly, and annual copper price adjustment strategies should reduce the reference weights of New York, London, and Shanghai, respectively, to avoid the risk of a single reference. For investors, their daily, quarterly, and annual portfolio and arbitrage strategies should focus on the leading futures price of the corresponding period to enact precise market timing. Moreover, Shanghai futures can be a haven in the short and medium terms, and New York and London futures can be a haven in the long run. Third, copper futures-spot price correlations show time asynchronism from semi-monthly to annual periodicity, providing a useful periodicity-based reference for pricing adjustment strategy and cross-market arbitrage.

Keywords: Multiscale; Comovement; Dynamic correlations; Futures-spot; Copper prices (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:70:y:2021:i:c:s0301420720309442

DOI: 10.1016/j.resourpol.2020.101913

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