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Asymmetric Adjustments in Oil and Metals Markets

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  • Shawkat Hammoudeh
  • Li-Hsueh Chen
  • Bassam Fattouh

Abstract

Using the threshold cointegration methods, Enders-Siklos (2001) and Hansen-Seo (2002), this study finds that spot and futures prices in each of the four widely traded commodities, copper, gold, WTI oil and silver are asymmetrically co-integrated. However, the asymmetric adjustment to the long-run equilibrium differs among those commodities, reflecting different profitable opportunities. The adjustment is faster for copper after positive shocks, while it is faster for the safe havens oil, gold and silver after negative shocks. It is more the spot and not the futures price for the four commodities that focuses in its adjustment on long-run factors. In sum, the adjustments imply different trading strategies, depending on whether the faster adjustment happened from above or below the threshold.

Suggested Citation

  • Shawkat Hammoudeh & Li-Hsueh Chen & Bassam Fattouh, 2010. "Asymmetric Adjustments in Oil and Metals Markets," The Energy Journal, , vol. 31(4), pages 183-204, October.
    • Handle: RePEc:sae:enejou:v:31:y:2010:i:4:p:183-204
    DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No4-9
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    References listed on IDEAS

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    1. Severin Borenstein & A. Colin Cameron & Richard Gilbert, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 305-339.
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