EARTH

[21001-14-12] What causes copper price changes: Stock markets, Oil market or Speculation?

○Kegomoditswe Koitsiwe¹, Tsuyoshi Adachi¹ (1. Akita University)

Chairman：Thitisak Boonpramote（Chulalongkorn University）, Tsuyoshi Adachi (Akita University)

Keywords:Copper prices, Structural change, Determinants, Speculation

The recent boom in commodity prices and even more so its abrupt end has triggered a debate over the extent to which developments in commodity markets are determined by the fundamental factors of supply and demand. Alternative views cite the market power of commodity producers and the behavior of investors in the financial markets as drivers. Moreover, many analysts emphasize the dynamic demand by emerging economies, most notably China. Understanding the factors driving commodity price developments is essential for assessing their effects. This paper examines the main financial market fundamentals behind the behavior of copper prices from 1993 to 2016 and to quantify how the relative importance of each of these variables have changed over time. Using least squares with breakpoints, this study identifies three structural breaks in LME copper price; that is in 1997, 2005 and 2009. The results show the existence of structural breaks refutes the utility of investigation of the full sample period as a whole. Additionally, in different structural periods the significance of individual factors varies. The results also indicate that lagged price or historic copper price dominates throughout the different periods therefore should always be included as a determinant. While fundamental demand is considered as the main determinant of copper prices factors such as speculative trading and S&P500 stock can further increase price pressures. The results of our analysis do not preclude the possibility that determinants other than those discussed in our study may become significant determinants of copper price changes.