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Testing for mild explosivity and bubbles in LME non-ferrous metals prices

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JTSA_3286_final.pdf (851.8Kb)
Date
09/2015
Author
Figuerola-Ferretti, Isabel
Gilbert, Christopher L.
McCrorie, Roderick
Funder
Carnegie Trust
Grant ID
31935
Keywords
Mildly explosive process
Recursive regression
Generalized sup ADF test
Economic bubbles
Commodity prices
Non-ferrous metals
HB Economic Theory
BDC
R2C
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Abstract
This paper applies the mildly explosive/multiple bubbles testing methodology developed by Phillips, Shi and Yu (2015a, International Economic Review, forthcoming) to examine the recent time series behaviour of the main six London Metal Exchange (LME) non-ferrous metals prices. We detect periods of mild explosivity in the cash and three-month futures price series in each of copper, nickel, lead, zinc and tin, but not in aluminium. We argue that convenience yield, though the formal counterpart to dividend yield in commodity markets, is not a useful basis on which to assess whether observed explosivity is indicative of bubbles (namely, departures of prices from their fundamental values). We construct other measures that provide evidence that suggests the observed explosivity in the non-ferrous metals market can be associated with tight physical markets.
Citation
Figuerola-Ferretti , I , Gilbert , C L & McCrorie , R 2015 , ' Testing for mild explosivity and bubbles in LME non-ferrous metals prices ' , Journal of Time Series Analysis , vol. 36 , no. 5 , pp. 763-782 . https://doi.org/10.1111/jtsa.12121
Publication
Journal of Time Series Analysis
Status
Peer reviewed
DOI
https://doi.org/10.1111/jtsa.12121
ISSN
0143-9782
Type
Journal article
Rights
(c) John Wiley & Sons Ltd. This is the peer reviewed version of the following article: Figuerola-Ferretti Isabel, Gilbert Christopher L., and McCrorie J. Roderick (2015), Testing for Mild Explosivity and Bubbles in LME Non-Ferrous Metals Prices, J. Time Ser. Anal, which has been published in final form at http://dx.doi.org/10.1111/jtsa.12121. This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.
Description
Figuerola-Ferretti thanks the Spanish Ministry of Education and Science for support under grants MICINN ECO2010-19357, ECO2012-36559 and ECO2013-46395, and McCrorie, The Carnegie Trust for the Universities of Scotland under grant no. 31935.
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  • University of St Andrews Research
URI
http://hdl.handle.net/10023/8118

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