EFFICIENCY ANALYSIS OF METAL MARKETS

Date

2024-5

Author

Kara, Alper

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This study analyzes the weak-form efficiency of global metal markets. We focus on both spot metal markets and three-month futures metal markets. To investigate the efficiency of spot metal markets, we examine the producer price index adjusted nominal prices of six base metals (copper, lead, aluminum, nickel, zinc, and tin) and three precious metals (gold, silver, and platinum). In the second chapter, we present a descriptive analysis, price dynamics, and an efficiency discussion about these metals. We apply two stationarity tests to quarterly data in the third chapter. One allows two sharp structural breaks while the other incorporates smooth breaks to the testing framework. Compared with the latter, the stationarity test with two sharp structural breaks captures the turning points better. A possible reason for such a result is the relative poor performance of the smooth break stationarity test in identifying the magnitude and timing of the sharp structural breaks. Except for gold and silver, we present evidence against the efficient market hypothesis with stationarity null accepted for almost all of the specifications considered in this study. Following the analysis of spot metal market efficiency, we concentrate on the futures market efficiency of the same six base metals in the London Metal Exchange in the fourth chapter. Our preliminary results indicate nonstationarity and no cointegration between futures and prompt prices for all six base metals. Therefore, we apply basis and forecast error-based regression approaches to analyze market efficiency. We present evidence against efficiency only for lead and zinc markets.

Subject Keywords

Metals, Structural changes, Market efficiency, Stationarity tests, Futures

URI

https://hdl.handle.net/11511/109428

Collections

Graduate School of Social Sciences, Thesis