EconPapers    
Economics at your fingertips  
 

Short-term price volatility and reversion rate in mineral commodity markets

Diego García () and Juan Ignacio Guzmán ()
Additional contact information
Diego García: Universidad Técnica Federico Santa María
Juan Ignacio Guzmán: Pontificia Universidad Católica de Chile

Mineral Economics, 2020, vol. 33, issue 1, No 18, 217-229

Abstract: Abstract The commodity price volatility is a critical characteristic of mineral markets, since it has planning as well as financial implications for different market participants such as governments, producers, investors, and consumers. This paper inquiries into the price volatility of mineral commodity markets by filling the gap between two main explanations available in the economic literature: the view of mineral economists, who establish that short-term price volatility arises mainly because in this time horizon supply cannot adjust to demand (which is associated with a very small speed of adjustment to market equilibrium), and the view of neoclassic microeconomic theorists, who affirm that supply adjusts instantly to demand (which is related with a high speed of adjustment to market equilibrium). We developed a conceptual model based on the current understanding of mineral economics, but where time to adjust to equilibrium plays a significant role into setting prices. Based on this, we posit that mineral commodity markets with larger reversion rates (i.e., the time necessary to achieve a long-term equilibrium price) have a smaller price volatility. By using a cross-sectional econometric model for 50 mineral commodities in the period 1900–2015, we found statistical support for an inverse relationship between short-term price volatility and reversion rates, which supports our hypothesis.

Keywords: Short-term price volatility; Commodity markets; Reversion rate; Market equilibrium; Price equilibrium; Disequilibrium; D40; Q31 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s13563-019-00190-7 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:minecn:v:33:y:2020:i:1:d:10.1007_s13563-019-00190-7

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/13563

DOI: 10.1007/s13563-019-00190-7

Access Statistics for this article

Mineral Economics is currently edited by Magnus Ericsson and Patrik Söderholm

More articles in Mineral Economics from Springer, Raw Materials Group (RMG), Luleå University of Technology
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

 
Page updated 2025-03-20
Handle: RePEc:spr:minecn:v:33:y:2020:i:1:d:10.1007_s13563-019-00190-7