An Analysis of the Variance and Distribution of Commodity Price Changes

Stephen J. Taylor and Brian G. Kingsman
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Stephen J. Taylor: Department of Operational Research, Lancaster University, UK. We wish to thank the UK Science Research Council for supporting part of the research and the referees for their helpful comments.
Brian G. Kingsman: Department of Operational Research, Lancaster University, UK. We wish to thank the UK Science Research Council for supporting part of the research and the referees for their helpful comments.

Australian Journal of Management, 1979, vol. 4, issue 2, 135-149

Abstract: A method of jointly estimating the time-dependent variance of daily commodity price changes and their distribution is presented. The data are copper spot prices (1966-74) and sugar futures prices (1961-73), for London contracts. Much of the leptokurtosis observed in the price change distributions is shown to result from the mixinq of non-normal distributions whose variances differ substantially. There are important consequences for conventional autocorrelation tests, which falsely assume a constant variance. The usefulness of the logarithmic transformation of prices is assessed statistically and it is found that the transformation does help to equalise the variance of price changes.

Keywords: COMMODITY PRICES; DAILY RETURNS; HETEROSCEDASTIC VARIANCES; STUDENT'S T-DISTRIBUTION; TRANSFORMATIONS (BOX-COX); VARIANCE ESTIMATES (search for similar items in EconPapers)
Date: 1979
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:4:y:1979:i:2:p:135-149

DOI: 10.1177/031289627900400205

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