Publication: Commonality in the LME aluminium and copper volatility processes through a Figarch lens
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2007-02
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Abstract
We consider dynamic representation of spot and three month aluminium and
copper volatilities. These are the two most important metals traded in the
London Metal Exchange (LME). They share common business cycle factors
and are traded under identical contract specifications. We apply the bivariate
FIGARCH model which allows parsimonious representation of long
memory volatility processes. Our results show that spot and three month
aluminium and copper volatilities follow long memory processes, that they
exhibit a common degree of fractional integration and that the processes are
symmetric. However, there is no evidence that the processes are fractionally
cointegrated. This high degree of commonality may result from the common
LME trading process.
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Volatility, Persistence, Fractional cointegration, Commodity futures