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A Bootstrap Rolling-Window Analysis of the Causal Relationship between Stock Prices and Copper Futures Prices

Chen Ming, Ma Yusong, Huang Zheng, Liu Yifang

Abstract


In this paper, we use bootstrap rolling-window causality test to reveal the nonlinear relationship between stock prices and copper futures prices, and comparatively analyze the nonlinear causality relationship in China and the United States. We select monthly data of Shanghai Stock Exchange index and the copper continuous contract of Shanghai Metal Exchange covering from 1998:10 to 2016:10 for China, moreover, monthly data of Dow Jones industrial index and the copper continuous contract of COMEX exchange covering from 1988:12 to 2016:10 for the US. The results show that stock prices and copper futures prices have structural breaks, there is a causal relationship in certain time intervals, and the influence and predictive effect of stock prices on copper futures prices are more sensitive. When the economy is running well, copper futures prices is influenced by stock prices in a negative way, while the effect of copper prices on stock prices can be positive or negative. In comparison, when an economic recession or downturn occurs, copper futures prices is influenced by stock prices in a negative way, while stock prices is influenced by copper prices in a positive way. Causal relationships between stock prices and copper futures prices of the United States and China have their own characteristics, and the time intervals are not consistent. Furthermore, the causal relationship between copper futures prices and stock prices of the United States is more obvious than that of China, and it exists mutual influence intervals between stock prices and copper futures prices in the US.


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