Asymmetric Adjustments in Oil and Metals Markets

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.

Long run dynamic volatilities between OPEC and non-OPEC crude oil prices

“…The market participants, assuming the OPEC actions, caused the price fluctuations (Mohammadi 2010;Hammoudeh 2010). However, our results show that non-OPEC countries do not strictly follow the OPEC strategies.…”

“…Moreover, a number of studies claim that there is an asymmetric relationship between the oil price followed by OPEC and non-OPEC countries (Chen et al 2005;Ewing et al 2006;Bekiros et al 2008;Hammoudeh et al 2010;Perdiguero-Garćia 2013). Chen et al (2005) document new supportive evidence for asymmetric adjustment in United States retail gasoline prices.…”

Price Transmission and Threshold Behavior in the African Catfish Supply Chain in Uganda

“…The AECM differ from the conventional (symmetric) ECM by allowing asymmetric long-run (and may be short-run) adjustments for the individual price series to take place from the threshold and toward the long-run equilibrium. Such a specification recognizes the fact that market participants respond differently to profitable opportunities in the long-run (and may be in the short-run), depending on whether the spread is narrowing or widening or the price series are increasing or decreasing (Hammoudeh et al, 2010). The AECM can be specified as follows:…”

Asymmetric adjustments in the ethanol and grains markets

“…1 It is acknowledged in the literature that contract liquidity has material bearing on the degree of adjustment symmetry (Fattouh, 2010). One reason that motivates us to study the spread and return behavior of ethanol and the agricultural commodities is that their futures contracts differ in terms of tradability and liquidity (Sari et al, 2012), as manifested in the respective sizes of their trading volumes and open interest positions, hedging capabilities in thinly and tightly traded markets, and integration over longer and shorter time intervals.…”

“…Thus, it will be interesting to determine whether ethanol's spread and return behavior is different from those of corn, soybeans and sugar. This contract diversity is not as important in the studies of asymmetry for oil, gold, silver and copper, which all are very highly traded (Hammoudeh et al, 2010).…”