The forward pricing function of industrial metal futures -- evidence from cointegration and smooth transition regression analysis

Joscha Beckmann and Robert Czudaj

International Review of Applied Economics, 2013, vol. 27, issue 4, 472-490

Abstract: The prices of internationally traded metals have experienced wild swings and increased volatility in recent years. The relationship between spot and futures prices is an important topic in this context, as the current period's price of a futures contract should be an unbiased estimator of next period's spot price under the joint assumption of risk neutrality and rationality. Taking as a basis data from the Dow Jones UBS Commodity Index, which uses metals traded on the London Metal Exchange and US exchanges, this study adopts nonlinear smooth transition models to analyze whether the forward spread is a leading indicator of future spot price movements. Our findings suggest that such a price discovery function can in most cases only be identified in periods of low volatility or small previous spreads. Moreover, the underlying dynamics are captured best by the use of a logistic transition function.

Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://hdl.handle.net/10.1080/02692171.2012.736480 (text/html)
Access to full text is restricted to subscribers.

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:taf:irapec:v:27:y:2013:i:4:p:472-490

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/CIRA20

DOI: 10.1080/02692171.2012.736480

Access Statistics for this article

International Review of Applied Economics is currently edited by Professor Malcolm Sawyer

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