The Role of Outliers and Oil Price Shocks on Volatility of Metal Prices

43 Pages Posted: 8 Sep 2015

See all articles by Niaz Behmiri

Niaz Behmiri

Fondazione Eni Enrico Mattei (FEEM)

Matteo Manera

University of Milan-Bicocca, Italy - Department of Economics, Management and Statistics (DEMS); Fondazione Eni Enrico Mattei (FEEM), Milan, Italy

Date Written: September 7, 2015

Abstract

This study investigates the price volatility of metals, using the GARCH and GJR models. First we examine the persistence of volatility and the leverage effect across metal markets taking into account the presence of outliers, and second we estimate the effects of oil price shocks on the price volatility of metals, allowing for the asymmetric responses. We use daily spot prices for the selected metals, including aluminum, copper, lead, nickel, tin, zinc, gold, silver, palladium and platinum. The main findings indicate that, returns show a high degree of volatility persistence before and after correcting outliers, outliers bias the parameters estimation of the GARCH-type models, and removing outliers improves the performance of models in capturing volatility. However in a comparison, Student-t distribution outperforms the approach of correcting outliers in capturing volatility. Moreover, we find the existence of inverse leverage effect for seven metals, the leverage effect for copper and no leverage effect for nickel and palladium. Finally, price volatility of metals differently reacts to oil price shocks and there is an asymmetric reaction of volatility to oil price shocks for seven metals.

Keywords: Metals, Commodities, Volatility, Oil Price, Outliers

JEL Classification: G13, Q4, C1

Suggested Citation

Behmiri, Niaz and Manera, Matteo, The Role of Outliers and Oil Price Shocks on Volatility of Metal Prices (September 7, 2015). FEEM Working Paper No. 077.2015. Available at SSRN: https://ssrn.com/abstract=2657090 or http://dx.doi.org/10.2139/ssrn.2657090

Niaz Behmiri (Contact Author)

Fondazione Eni Enrico Mattei (FEEM) ( email )

C.so Magenta 63
Milano, 20123
Italy

Matteo Manera

University of Milan-Bicocca, Italy - Department of Economics, Management and Statistics (DEMS) ( email )

Via Bicocca degli Arcimboldi, 8
Milan, 20126
Italy
+39 02 6448 5819 (Phone)
+39 02 6448 5878 (Fax)

HOME PAGE: http://www.matteomanera.it

Fondazione Eni Enrico Mattei (FEEM), Milan, Italy ( email )

Corso Magenta, 63
Milan, 20123
Italy
+39 02 520 36944 (Phone)

HOME PAGE: http://www.feem.it

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
74
Abstract Views
573
rank
330,766
PlumX Metrics