Transactions of Nonferrous Metals Society of China The Chinese Journal of Nonferrous Metals

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Transactions of Nonferrous Metals Society of China

Vol. 24    No. 2    February 2014

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Applications of nonferrous metal price volatility to prediction of China’s stock market
Die-feng PENG, Jian-xin WANG, Yu-lei RAO

Institute of Metal Resources Strategy, Central South University, Changsha 410083, China

Abstract:The aim of the present work is to examine whether the price volatility of nonferrous metal futures can be used to predict the aggregate stock market returns in China. During a sample period from January of 2004 to December of 2011, empirical results show that the price volatility of basic nonferrous metals is a good predictor of value-weighted stock portfolio at various horizons in both in-sample and out-of-sample regressions. The predictive power of metal copper volatility is greater than that of aluminum. The results are robust to alternative measurements of variables and econometric approaches. After controlling several well-known macro pricing variables, the predictive power of copper volatility declines but remains statistically significant. Since the predictability exists only during our sample period, we conjecture that the stock market predictability by metal price volatility is partly driven by commodity financialization.


Key words: commodity futures; nonferrous metals; price volatility; stock return; predictability

ISSN 1004-0609
CN 43-1238/TG

ISSN 1003-6326
CN 43-1239/TG

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