The role of outliers and oil price shocks on volatility of metal prices

• Published in: Resources policy Vol. 46; pp. 139 - 150
• Main Authors: Behmiri, Niaz Bashiri, Manera, Matteo
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01-12-2015
• Subjects: Asymmetry; Autoregressive processes; Commodities; Copper; Metals; Nickel; Oil price; Outliers; Outliers (statistics); Palladium; Volatility; Zinc; Outliers; Volatility; Metals; Oil price; Commodities
• ISSN: 0301-4207; 1873-7641
• DOI: 10.1016/j.resourpol.2015.09.004

This study investigates the price volatility of metals, using GARCH and GJR models. First, we examine the persistence of volatility and the leverage effect across metal markets taking into account the presence of outliers. Second, we estimate the effects of oil price shocks on the price volatility of metals, allowing for asymmetric responses. We use daily spot prices for aluminum, copper, lead, nickel, tin, zinc, gold, silver, palladium and platinum. We find that returns have a high degree of volatility persistence before and after correcting for outliers, outliers bias the estimation of GARCH and GJR models, and removing outliers improves volatility modelling. However, Student-t-based specifications outperform outliers correction in capturing volatility. Moreover, we document inverse leverage effects for seven metals, leverage effect for copper and no leverage effects for nickel and palladium. Finally, price volatility of metals reacts differently and asymmetrically to oil price shocks.
•We investigate the impact of outliers and oil price shocks on price volatility of ten metals.•Outliers bias the parameters estimation of the GARCH-type models.•Removing outliers improves the performance of the GARCH-type models in capturing volatility.•There is an inverse leverage effect for seven metals and a leverage effect for copper.•There is an asymmetric reaction of volatility to oil price shocks for seven metals.