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Testing Efficiency of the London Metal Exchange: New Evidence

Author

Listed:
  • Jaehwan Park

    (Commodity Research Center, Public Procurement Service, Daejeon 35208, Korea)

  • Byungkwon Lim

    (Housing Finance Research Institute, Korea Housing Finance Corporation, Busan 48400, Korea)

Abstract

This paper explores the market efficiency of the six base metals traded on the LME (London Metal Exchange) using daily data from January 2000 to June 2016. The hypothesis that futures prices 3M (3-month) are unbiased predictors of spot prices (cash) in the LME is rejected based on the false premise that the financialization of commodities has been growing. For the robustness check, monthly data is analyzed using ordinary least squares (OLS) and GARCH (1,1) models. We reject the null hypothesis for all metals except for zinc.

Suggested Citation

  • Jaehwan Park & Byungkwon Lim, 2018. "Testing Efficiency of the London Metal Exchange: New Evidence," IJFS, MDPI, vol. 6(1), pages 1-10, March.
    • Handle: RePEc:gam:jijfss:v:6:y:2018:i:1:p:32-:d:136280
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    References listed on IDEAS

    as
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    5. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    6. Jaehwan Park, 2018. "Volatility Transmission between Oil and LME Futures," Applied Economics and Finance, Redfame publishing, vol. 5(2), pages 65-72, March.
    7. Jaehwan Park, 2019. "Effect of Speculators’ Position Changes on the LME Futures Market," IJFS, MDPI, vol. 7(2), pages 1-9, June.
    8. Mohamed El Hedi Arouri & Fredj Jawadi & Prosper Mouak, 2011. "The speculative efficiency of the aluminum market: A nonlinear Investigation," International Economics, CEPII research center, issue 126-127, pages 73-89.
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    10. repec:cii:cepiei:2011-q2-3-126-127-5 is not listed on IDEAS
    11. Isabel Figuerola‐Ferretti & Christopher L. Gilbert, 2008. "Commonality in the LME aluminum and copper volatility processes through a FIGARCH lens," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 28(10), pages 935-962, October.
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    Cited by:

    1. Galán-Gutiérrez, Juan Antonio & Martín-García, Rodrigo, 2021. "Cointegration between the structure of copper futures prices and Brexit," Resources Policy, Elsevier, vol. 71(C).
    2. Jaehwan Park, 2019. "Effect of Speculators’ Position Changes on the LME Futures Market," IJFS, MDPI, vol. 7(2), pages 1-9, June.
    3. Borkowski, Bolesław & Krawiec, Monika & Karwański, Marek & Szczesny, Wiesław & Shachmurove, Yochanan, 2021. "Modeling garch processes in base metals returns using panel data," Resources Policy, Elsevier, vol. 74(C).
    4. Byungkwon Lim & Hyeon Sook Kim & Jaehwan Park, 2020. "Direct Effect of TC on the LME Copper Prices," Economies, MDPI, vol. 8(2), pages 1-9, May.
    5. Juan Antonio Galán-Gutiérrez & Rodrigo Martín-García, 2022. "Fundamentals vs. Financialization during Extreme Events: From Backwardation to Contango, a Copper Market Analysis during the COVID-19 Pandemic," Mathematics, MDPI, vol. 10(4), pages 1-23, February.
    6. Jaehwan Park, 2018. "Volatility Transmission between Oil and LME Futures," Applied Economics and Finance, Redfame publishing, vol. 5(2), pages 65-72, March.
    7. Byungkwon Lim & Hyeon Sook Kim & Jaehwan Park, 2021. "Implicit Interpretation of Indonesian Export Bans on LME Nickel Prices: Evidence from the Announcement Effect," Risks, MDPI, vol. 9(5), pages 1-7, May.

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