A note on the efficiency of the London metal exchange

Testing Efficiency of the London Metal Exchange: New Evidence

“…Some informed traders in the market can therefore make an abnormal return with private information. These findings did not coincide with former studies, except for those by Sephton and Cochrane (1990). They stated that the reason may be related to time-varying risk premia.…”

“…Sephton and Cochrane (1991) reconsidered the LME data over the same period using the CUSUM of Squares stability test. They showed that the LME experienced structural change over this period, which implied that the market efficiency tests based on the Fama research scheme were somewhat less than conclusive (Sephton and Cochrane 1990).…”

“…He rejected the EMH for copper and zinc, but not for lead and tin. Sephton and Cochrane (1990) investigated the EMH for the LME with respect to six major base metals using monthly overlapping data from 1976 to 1989. They found that the LME is an inefficient market.…”

“…On the data verification front, the data used in Canarella and Pollard (1986) were from an old-fashioned method of collecting monthly data by hand from the Wall Street Journal. Sephton and Cochrane (1990) relied on various sources, such as the New York Times, the Times, and the Globe and Mail, though they still collected data by hand. This paper used daily data from Reuters, which provides high frequency data compared to monthly data.…”

Forecasting metal prices: Do forecasters herd?

“…In an early study of the London Metal Exchange, Canarella and Pollard (1986) analyze whether futures prices are unbiased predictors of future spot prices. Sephton and Cochrane (1990) further study the efficiency of the London Metal Exchange by means of single-market and multiple-market models that employ the dynamics of forward and spot ("prompt") prices. Other researchers have focused on the cointegration of spot and metal futures prices (Brenner andKroner 1995, Chow 1998, among others).…”