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Modeling the Commodity Prices of Base Metals in Indian Commodity Market Using a Higher Order Markovian Approach

Author

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  • Suryadeepto Nag

    (Indian Institute of Science Education and Research Pune)

  • Sankarshan Basu

    (Indian Institute of Management Bangalore)

  • Siddhartha P. Chakrabarty

    (Indian Institute of Technology Guwahati)

Abstract

A higher order Markovian (HOM) model to capture the dynamics of commodity prices is proposed as an alternative to a Markovian model. In particular, the order of the former model, is taken to be the delay, in the response of the industry, to the market information. This is then empirically analyzed for the prices of copper mini and four other bases metals, namely aluminum, lead, nickel and zinc, in the Indian commodities market. In case of copper mini, the usage of the HOM approach consistently offered improvement, over the Markovian approach, in terms of the errors in forecasting. Similar trends were observed for the other base metals considered, with the exception of aluminum, which can be attributed to the volatility in the Asian market during the COVID-19 outbreak.

Suggested Citation

  • Suryadeepto Nag & Sankarshan Basu & Siddhartha P. Chakrabarty, 2022. "Modeling the Commodity Prices of Base Metals in Indian Commodity Market Using a Higher Order Markovian Approach," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 20(1), pages 159-171, March.
    • Handle: RePEc:spr:jqecon:v:20:y:2022:i:1:d:10.1007_s40953-021-00258-8
    DOI: 10.1007/s40953-021-00258-8
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    More about this item

    Keywords

    Commodity prices; Copper mini; Higher order Markovian; Estimation;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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