The Empirical Study Of The Impact Of Funds’ Speculation On International Copper Price

Abstract:During these years, with copper’s financial property strengthening, more and more funds enter copper market, including hedge funds, commodity index funds and the managed futures funds. Now these funds have played an important role in the international copper market. At the same time, cooper price is in the wild fluctuation. Many people suspect, does the copper price’s big volatility have something to do with the funds’speculation? About this question, economists, commodity producer, commodity end-users and policy-makers have different opinions.First this paper use Geweke decomposition test to study the relation between funds’speculation and the copper price. For international investment funds such as hedge funds and futures investment funds, they move quickly in and out of the copper market, and may induce the copper price in the wild fluctuation. As for this, Geweke decomposition test can measure long-term and short-term causal relationships between two variables, which overcome the weakness of the Granger that can only test long-term casual relationship to study this question, and can more accurately reveal the relationship between the funds’speculation and international copper prices. The empirical result shows the existence of strong causal relationship between them. And The causal relationship is mainly the short-term causal relation. In the long term, the copper price is the cause of the funds’speculation, while the funds’speculation is not the cause of the copper price. This suggests that the funds’ speculation is not the essential cause of the copper price long-term volatility, but it makes the copper price fluctuate heavily in the short term.Then this paper uses GARCH model to further analysis the funds’ speculation’s influence on the fluctuations in the price of copper. Using a standard GARCH model to study the influence of the change of funds’ speculation positions on the fluctuation of the copper price, the result shows that copper price volatility lasts a long time, and that the funds’ speculation positions’ change has no effect on copper price fluctuations. The EGARCH model is adopted to examine the asymmetric effect of copper price fluctuations, the empirical result shows that the asymmetric effect of copper futures price volatility exists, that’s to say, bad news may cause greater volatility on copper prices than the same amount of good news does.In the end the paper summarizes the empirical results and puts forward policy suggestions for China’s futures market and copper industry.