An empirical study on information spillover effects between the Chinese copper futures market and spot market

Xiangli Liu, Siwei Cheng, Shouyang Wang, Yongmiao Hong and Yi Li

Physica A: Statistical Mechanics and its Applications, 2008, vol. 387, issue 4, 899-914

Abstract: This study employs a parametric approach based on TGARCH and GARCH models to estimate the VaR of the copper futures market and spot market in China. Considering the short selling mechanism in the futures market, the paper introduces two new notions: upside VaR and extreme upside risk spillover. And downside VaR and upside VaR are examined by using the above approach. Also, we use Kupiec’s [P.H. Kupiec, Techniques for verifying the accuracy of risk measurement models, Journal of Derivatives 3 (1995) 73–84] backtest to test the power of our approaches. In addition, we investigate information spillover effects between the futures market and the spot market by employing a linear Granger causality test, and Granger causality tests in mean, volatility and risk respectively. Moreover, we also investigate the relationship between the futures market and the spot market by using a test based on a kernel function. Empirical results indicate that there exist significant two-way spillovers between the futures market and the spot market, and the spillovers from the futures market to the spot market are much more striking.

Keywords: Futures market; Kernel function; Backtest; Information spillover; Granger causality; Conditional VaR; Extreme upside risk; Extreme downside risk (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:387:y:2008:i:4:p:899-914

DOI: 10.1016/j.physa.2007.09.044

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