What is it about?
We analyze various types of models for Value at Risk (VaR) forecasts for daily copper returns. The period of the analysis is from January 4, 2000 to January 14, 2021 including 5290 daily closing prices. The models considered are GARCH-type models, the Generalized Autoregressive Score model, the Dynamic Quantile Regression model, and the Conditional Autoregressive Value at Risk model specifications. The best model is selected using the Model Confidence Set approach. This approach provides a superior set of models by testing the null hypothesis of equal predictive ability. The findings suggest that the EGARCH model outperforms the rest of the models for the copper commodity under investigation.
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Why is it important?
The primary applications of copper are in electrical wiring, electric cables and other electric appliances, electroplating, architecture, air conditioning, roofing, electrical systems renewable energy sources, plumbing, fish farming, art, making coins and jewels, shipbuilding, transports, telecommunications and industrial machinery.
Perspectives
Our focal point is copper for a variety of reasons. Except for silver, copper has the highest electrical and thermal conductivity of all-natural elements. Not only is it almost one hundred times cheaper than silver but it is also considerably resistant to corrosion, thus rendering copper the most selected metal for all electrical and electronic applications both in the construction industry and for wider industrial uses. Its additional advantage lies in its antibacterial properties which have led to copper being widely used in medical equipment. Considering the significant role that the construction, telecommunication, transportation, and medical sectors play in a modern economy, copper's fluctuations can be viewed as the first sign of global economic performance. In fact, the relatively inelastic supply of copper owing to long technical and resource-based lags in the expansion of production leads to it displaying a prompt reaction to global demand cyclicality, and mostly to demand changes from its largest consumer, namely China. Hence, any kind of change in copper demand manifests itself in movements in copper prices and is regarded by investors as an indicator of changes in global production.
Dr Spyros Papathanasiou
National and Kapodistrian University of Athens
Read the Original
This page is a summary of: Estimation of value at risk for copper, Journal of Commodity Markets, August 2023, Elsevier,
DOI: 10.1016/j.jcomm.2023.100351.
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