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Cointegration between the structure of copper futures prices and Brexit

Juan Antonio Galán-Gutiérrez and Rodrigo Martín-García

Resources Policy, 2021, vol. 71, issue C

Abstract: In copper futures trading, ‘contango’ (or ‘forwardation’) is the condition in which the futures price enjoys a premium over the spot price on the London Metal Exchange at the close of the second ring and ‘backwardation’ the contrary. That spread or difference between the two prices is affected by fundamentals such as supply and demand as well as by political, social, environmental and macroeconomic risks, hereafter grouped under the term ‘financialisation factors’. Based on analysis of variations in the BUKHI50P stock index that monitors the impact of Brexit on UK companies, this study shows that in the context of a market shortage, Brexit-related macroeconomics and their effect on local companies are cointegrated with the structure of copper futures prices. Guidelines are also provided for traders on when to short- and when to long-sell to capitalise on the structure of copper futures prices under simultaneous market shortage and adverse macroeconomic circumstances.

Keywords: Brexit; Commodities; Structure of copper futures prices; Cointegration; Contango; Backwardation (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.resourpol.2021.101998

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