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

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dc.contributor.authorGalán Gutiérrez, Juan Antonio
dc.contributor.authorMartín García, Rodrigo
dc.date.accessioned2024-06-11T15:15:10Z
dc.date.available2024-06-11T15:15:10Z
dc.date.issued2022-02-11
dc.description.abstractThe 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.en
dc.description.versionversión publicada
dc.identifier.doihttps://doi.org/10.3390/math10040559
dc.identifier.issneISSN: 2227-7390
dc.identifier.urihttps://hdl.handle.net/20.500.14468/22336
dc.journal.issue4
dc.journal.titleMathematics
dc.journal.volume10
dc.language.isoen
dc.publisherMDPI
dc.relation.centerFacultad de Ciencias Económicas y Empresariales
dc.relation.departmentEconomía de la Empresa y Contabilidad
dc.rightsAtribución 4.0 Internacional
dc.rightsinfo:eu-repo/semantics/openAccess
dc.rights.urihttp://creativecommons.org/licenses/by/4.0
dc.subject.keywordsCOVID-19
dc.subject.keywordscommodities
dc.subject.keywordsstructure of copper futures prices
dc.subject.keywordscointegration
dc.subject.keywordscontango
dc.subject.keywordsbackwardation
dc.subject.keywordsextreme event contexts
dc.titleFundamentals vs. Financialization during Extreme Events: From Backwardation to Contango, a Copper Market Analysis during the COVID-19 Pandemices
dc.typeartículoes
dc.typejournal articleen
dspace.entity.typePublication
relation.isAuthorOfPublication116c4b15-2369-4e5c-8c59-e0b7c5ac592f
relation.isAuthorOfPublication.latestForDiscovery116c4b15-2369-4e5c-8c59-e0b7c5ac592f
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