The efficiency of the london metal exchange: another look at the evidence

Sephton, Peter S.; Cochrane, Donald K.

doi:10.1080/00036849108841022

Cited by 22 publications

(6 citation statements)

References 8 publications

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“…In other cases, non-stationarity is ignored. For example, Sephton and Cochrane (1990b) use cointegration, but Sephton and Cochrane (1991) ignore non-stationarity in essentially the same data. Given the evidence for unit roots in metal spot, forward and futures price series, the relationships described in some of the 25 papers that do not test for non-stationarity may be spurious.…”

Section: Diagnostic Testingmentioning

confidence: 86%

“…Tests involving forecast errors evaluate whether lagged forecast errors aid in predicting current forecast errors. The empirical analysis of forecast errors in single market Fama (1984a,b), Sephton and Cochrane (1991) produce results contradicting previously published empirical papers using the same methodology. Efficiency is rejected for the copper and tin markets, where risk premia cannot be rejected.…”

Section: Economic Hypotheses Analysed In Empirical Researchmentioning

confidence: 99%

“…The zinc market was considered in 28 papers, also exclusively using LME spot or futures data. Sephton and Cochrane (1991) note that, up to and including September 1985, zinc was classed as either zinc standard or zinc high grade, after which only the high-grade metal price was reported. Questions have been raised in the literature over the robustness of models to structural changes in the data that occur due to changes in contract specifications, particularly in the definition of the commodity traded.…”

Section: Sample Datamentioning

confidence: 99%

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Econometric modelling of non‐ferrous metal prices

Watkins

McAleer

2004

Journal of Economic Surveys

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This article evaluates the significance of the empirical models and the distributional properties of prices in non-ferrous metal spots and futures markets published in leading refereed economics and finance journals between 1980 and 2002. The survey focuses on econometric analyses of pricing and return models applied to exchange-based spot and futures markets for the main industrially used non-ferrous metals, namely aluminium, copper, lead, nickel, tin and zinc. Published empirical research is evaluated in the light of the type of contract examined, frequency of data used, choice of both dependent and explanatory variables, use of proxy variables, type of model chosen, economic hypotheses tested, methods of estimation and calculation of SEs for inference, reported descriptive statistics, use of diagnostic tests of auxiliary assumptions, use of nested and non-nested tests, use of information criteria and empirical implications for non-ferrous metals.

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Section: Diagnostic Testingmentioning

confidence: 86%

Section: Economic Hypotheses Analysed In Empirical Researchmentioning

confidence: 99%

Section: Sample Datamentioning

confidence: 99%

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Econometric modelling of non‐ferrous metal prices

Watkins

McAleer

2004

Journal of Economic Surveys

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“…They found that the LME is an inefficient market. 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).…”

Section: Literature Reviewmentioning

confidence: 99%

Testing Efficiency of the London Metal Exchange: New Evidence

Park

Lim

2018

IJFS

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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.

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“…While applying the difference operator to each variable can achieve stationarity in the data, this imposes too many unit roots in the system if the variables are cointegrated, thereby rendering standard methods of statistical inference inappropriate. To properly account for the non-stationary time series, researchers have begun to use the cointegration framework developed by Engle and Granger (1987) to test for market efficiency since the 1990s, e.g., MacDonald and Taylor (1988), Sephton and Cochrane (1991), Chowdhury (1991), Krehbiel and Adkins (1993) and Moore and Cullen (1995). Based on recent developments in econometric techniques for models with non-stationary variables, this article exploits the non-stationarity of interest rates, spot and futures prices to test the EMH using data on levels in a cointegration framework.…”

mentioning

confidence: 99%

Arbitrage, Risk Premium, and Cointegration Tests of the Efficiency of Futures Markets

Chow

2001

Business Fin & Account

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This article provides a new perspective on the efficiency of futures markets in a cointegration framework. Under the conventional risk premium hypothesis, if futures and spot prices are non-stationary, they must be cointegrated if futures markets are efficient. Alternatively, the cost-of-carry model implies that there should be a cointegration relationship among spot prices, futures prices and interest rates assuming all the series contain a unit root. Market efficiency further implies specific parameter restrictions under these two models. Using data on the futures markets for gold, silver, palladium and platinum, this article first establishes that interest rates, spot and futures prices are unit root non-stationary. The evidence on cointegration is somewhat mixed: the gold futures market is consistent with the cost-of-carry model, and the silver futures market satisfies the risk premium hypothesis, but the evidence for the other two markets is inconclusive. Copyright Blackwell Publishers Ltd 2001.

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The efficiency of the london metal exchange: another look at the evidence

Cited by 22 publications

References 8 publications

Econometric modelling of non‐ferrous metal prices

Econometric modelling of non‐ferrous metal prices

Testing Efficiency of the London Metal Exchange: New Evidence

Arbitrage, Risk Premium, and Cointegration Tests of the Efficiency of Futures Markets

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