Fundamentals vs. Financialization during Extreme Events: From Backwardation to Contango, a Copper Market Analysis during the COVID-19 Pandemic

Galán Gutiérrez, Juan Antonio y Martín-García, Rodrigo . (2022) Fundamentals vs. Financialization during Extreme Events: From Backwardation to Contango, a Copper Market Analysis during the COVID-19 Pandemic. Mathematics (2022) 10-4, 559

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Título Fundamentals vs. Financialization during Extreme Events: From Backwardation to Contango, a Copper Market Analysis during the COVID-19 Pandemic
Autor(es) Galán Gutiérrez, Juan Antonio
Martín-García, Rodrigo
Materia(s) Economía
Abstract The COVID-19 pandemic has shocked commodities markets in general and base metals markets in particular. The market turmoil made it very difficult to act in the physical market, given the impossibility of establishing or maintaining physical and/or financial positions in a context of high uncertainty. This has happened both in different moments of the development of the pandemic and in geographically different frames. That is why this contribution tries to explain the evolution of warehouses and copper price structure and its utility for hedging in the context of an extreme event. To that end, Granger causality has been used to test whether, during the COVID-19 first wave, the pandemic evolution is cointegrated on one hand with copper futures price structure and, on the other, with the incremental levels of copper stocks. Using 102 official copper prices on London Metal Exchange (LME) trading days, between 13 January 2020 and 5 June 2020 (once the most severe effects of the first wave had been overcome), it was demonstrated that, during the first COVID-19 wave in Europe, the weekly death index variation was cointegrated with the copper future price structure. It has been proven that, in this timelapse, contango in futures price structure has increased its value, and the incremental levels of stock in copper LME warehouses are linked with a stable contango structure. In short, we find that fundamental market effects predominate, in a context in which commodities used to be more financialized. This leads market players, such as traders, miners, and transformers, to move exposures in their hedging structures, under such extreme event situations, in favor of or against either contango or backwardation, so as to derive value from them.
Palabras clave COVID-19
commodities
structure of copper futures prices
cointegration
contango
backwardation
extreme event contexts
Editor(es) MDPI
Fecha 2022-02-11
Formato application/pdf
Identificador bibliuned:DptoEEC-FCEE-Articulos-Jagutierrez-0003
http://e-spacio.uned.es/fez/view/bibliuned:DptoEEC-FCEE-Articulos-Jagutierrez-0003
DOI - identifier https://doi.org/10.3390/math10040559
ISSN - identifier eISSN: 2227-7390
Nombre de la revista Mathematics
Número de Volumen 10
Número de Issue 4
Publicado en la Revista Mathematics (2022) 10-4, 559
Idioma eng
Versión de la publicación publishedVersion
Tipo de recurso Article
Derechos de acceso y licencia http://creativecommons.org/licenses/by/4.0
info:eu-repo/semantics/openAccess
Tipo de acceso Acceso abierto
Notas adicionales La versión publicada de este artículo, publicada por primera vez en Mathematics (2022) 10-4, 559, está disponible en línea en el sitio web de la editorial: MDPI https://doi.org/10.3390/math10040559
Notas adicionales The published version of this article, first published in Mathematics (2022) 10-4, 559, is available online at the publisher's website: MDPI https://doi.org/10.3390/math10040559

 
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Creado: Tue, 09 Apr 2024, 20:15:09 CET