ISSN: 1003-6326
CN: 43-1239/TG

Vol. 24    No. 2    February 2014

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
Superintended by The China Association for Science and Technology (CAST)
Sponsored by The Nonferrous Metals Society of China (NFSOC)
Managed by Central South University (CSU)