A study on the Price Behavior of Base Metals traded in India

Sinha, Pankaj and Mathur, Kritika (2013): A study on the Price Behavior of Base Metals traded in India.

Abstract

This study looks into the price behavior of five base metals – aluminum, copper, zinc, lead and nickel traded on Multi Commodity Exchange (MCX), using near month futures contracts and spot contracts for the period from November 2007 to January 2013. To assess the impact of the recent Global Financial Crisis on trading of base metals, the price volatility of the base metals has been examined using GARCH models. The paper also studies the effect of implied volatility of equity market, measured by India VIX on the price volatility of the five base metals. The findings of the study suggest that there is presence of short term persistence in price volatility of the metals, and the daily price volatility of base metals is influenced by the Global Financial Crisis. The implied volatility in equity market is also found to affect the price volatility of the metals. Thus, the paper gives important evidence in support of the introduction of option contracts on base metals in Indian Commodity Markets, since option contracts are priced considering the price volatility of the underlying asset.

• Item Type: MPRA Paper
• Language: English
• Keywords: Option contracts, Base metals, Volatility, Futures contract, VIX
• Subjects: G - Financial Economics > G0 - General > G01 - Financial Crises; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L61 - Metals and Metal Products ; Cement ; Glass ; Ceramics; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General

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