A R-Vine Copula Analysis of Non-ferrous Metal Futures with Application in Forecasting Value-at-Risk

58 Pages Posted: 29 Jun 2020

See all articles by Xuyuan Han

Xuyuan Han

Renmin University of China

Zhenya Liu

Renmin University of China; CERGAM, Aix-Marseille University

Shixuan Wang

University of Reading - Department of Economics

Date Written: June 5, 2020

Abstract

We employ the R-vine copula approach to study the dependence structures among non-ferrous metal commodity futures on the London Metal Exchange, focusing on the comparison before and after the 2008 financial crisis. We document that the center of dependence structure among non-ferrous metal futures has changed from copper to zinc after the crisis. We find that the risk diversification benefit among non-ferrous metals diminishes after the crisis, and there is a significantly increase in their tail dependence. We further develop a R-vine copula-based method for forecasting Value-at-Risk, and the back-testing results show superior forecast accuracy over benchmark methods. Our study is useful for market participants to enhance their risk management for non-ferrous metals.

Keywords: R-vine copula; dependence structure; financial crisis; Value-at-Risk

JEL Classification: C58, G01; L61

Suggested Citation

Han, Xuyuan and Liu, Zhenya and Wang, Shixuan, A R-Vine Copula Analysis of Non-ferrous Metal Futures with Application in Forecasting Value-at-Risk (June 5, 2020). Available at SSRN: https://ssrn.com/abstract=3619728 or http://dx.doi.org/10.2139/ssrn.3619728

Xuyuan Han

Renmin University of China ( email )

No.29 Zhongguancun Street
Haidian District
Beijing, Beijing 100872
China

Zhenya Liu (Contact Author)

Renmin University of China ( email )

School of Finance
Beijing, Beijing 100872
China

CERGAM, Aix-Marseille University ( email )

Aix-Marseille University
3 Avenue Robert Schuman,
Aix-en-Provence, 13628
France
0781668685 (Phone)

Shixuan Wang

University of Reading - Department of Economics ( email )

Reading, RG6 6AA
United Kingdom

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