Pricing of non-ferrous metals futures on the London Metal Exchange

Clinton Watkins and Michael McAleer

Applied Financial Economics, 2006, vol. 16, issue 12, 853-880

Abstract: The London Metal Exchange (LME) is the most important centre for spot and futures trading in the main industrially-used non-ferrous metals. In this study, data on 3-month futures contracts for aluminium, aluminium alloy, copper, lead, nickel, tin, and zinc are analysed. The risk premium hypothesis and the cost-of-carry model are the standard theoretical models for pricing futures contracts, but these two models have rarely been estimated within a unified framework for metals futures. Single equation versions of the risk premium hypothesis and the cost-of-carry model are nested within a more general model. If the spot price, futures price, interest rate, and stock level variables contain stochastic trends, long run versions of the general model can be estimated within a cointegration framework. Various long run pricing models are estimated using daily LME price data for the period 1 February 1986 to 30 September 1998. Likelihood ratio tests are used to test restrictions on the general model to examine the validity of alternative nested specifications.

Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/09603100600756514 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Pricing of Non-ferrous Metals Futures on the London Metal Exchange (2003)
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:taf:apfiec:v:16:y:2006:i:12:p:853-880

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/09603100600756514

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().