Does the London Metal Exchange follow a random walk? Evidence from the predictability of futures prices

Artikel

This paper analyses the validity of the weak-form market efficiency, using the random-walk hypothesis for the six industrial base metals - copper, aluminium, zinc, nickel, tin and lead - traded at the London Metal Exchange. I analyse the behaviour of daily and weekly prices of the daily rolling three-month futures contracts, as these contracts exhibit the highest level of trading activity. In contrast to other efficient-market studies, the efficiency of futures prices is not tested as an unbiased predictor of the spot prices but from the predictability of futures prices themselves. I focus on the post-Tin Crisis period of 1989 to 2007. My test methodology includes the Box & Pierce Q-statistics, variance ratio tests by Lo and MacKinlay with homoscedastic and heteroscedastic test estimates, nonparametric ranks- and signs-based variance ratio tests by Wright and wild bootstrapping variance ratio tests by Kim. My sample basis fails to reject the random-walk hypothesis for all base metal futures except for lead.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: The Open Economics Journal ; ISSN: 1874-9194h ; Volume: 3 ; Year: 2010 ; Pages: 25-41 ; Sharjah: Bentham Open

Classification and Topics

• Classification: Wirtschaft
• Subject: London Metal Exchange ; LME ; random walk ; weak-form efficiency ; futures markets ; commodities

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Otto, Sascha
• Event: Veröffentlichung
• (who): Bentham Open
• (where): Sharjah
• (when): 2010

Further information

• DOI: doi:10.2174/1874919401003010025
• Handle: http://hdl.handle.net/10419/67422
• Last update: 10.03.2025, 11:44 AM CET