A R-Vine Copula Analysis of Non-ferrous Metal Futures with Application in Forecasting Value-at-Risk
58 Pages Posted: 29 Jun 2020
Date Written: June 5, 2020
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: Suggested Citation