How Does the Us Economic Indicators Effect the Copper Prices : a Quantitative Analysis

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how does the US Economic indicators Effect the Copper Prices : A Quantitative Analysis

abhishek jhunjhunwala

Economic indicators have major role on the prices of the commodities. A quantitative analysis was done to construct a model to predict the future prices of the commodities. Nineteen economic indicators were considered for our study based on CME rating. The analysis was done on base metals & the results of aluminium are presented here. In addition to effect of economic indicators the effect of the business cycles is also analysed in the present study. Secondary data was collected from different official sources & past two business cycles data was considered for analysis. A regression model was constructed by using SPSS to predict the future prices of aluminium. The price of aluminium mainly affected by economic indicators Imports, Industrial Production Capacity Utilisation (per cent), Consumer Sentiment Index & new privately owned housing units permits. To analyse business cycle effect two different models were considered one with business cycles after 1990 combined together & the other one with the recent business cycle. The effect of some economic indicators is different in different business cycles.

Key words : Economic Indicators, Copper Price, Business Cycle, Regression Analysis


An economic indicator is a statistic about the economic performance of a country. Economic indicators allow analysis of the present economic performance & predictions of future performance. Economic indicators are the vital barometers that tell us what the economy is up to &, more importantly, in what direction it is likely to go in the future. These indicators describe the economic backdrop that will ultimately affect earnings, interest rates & inflation. They can also influence the future cost of loans, the security of our jobs & our overall standard of living. Even executives of various businesses are under pressure to monitor the economic indicators more closely. Knowledge of economic conditions enables executives to make decisions with greater confidence on whether to buy more equipment, increase inventories, hire workers, or raise fresh capital (Bernard Baumohl, 2005).

The release of economic indicators also affects the prices of the commodities. Many people eagerly anticipate the release of the indicators as they have a large impact on equity & commodity markets.

Objectives of Study

The main objective of the study is to find the effect of the US economic indicators on aluminium prices. To find is there any impact of the economic indicators on the aluminium prices then to establish a model to predict the future prices of aluminium based on the economic indicators data. Some economic indicators lead commodity prices, some lags & others are coincident with the commodity prices. Prior knowledge of this will help in predicting the future price of the commodity.

Literature Survey

Previous literature on the impact of macroeconomic announcements has mostly focused on bond & currency markets, with fairly clear evidence that macroeconomic news has significant price & volatility effects. Rossi (1998) finds that certain key economic announcements cause U.K Government bond yield changes of between 2-6 basis points, including beyond the trading day. Fleming and Remelona (1999) find that the arrival of public information has a large effect on prices and subsequent trading activity, particularly during periods in which uncertainty (as measured by implied volatility) is high. Balduzzi, Elton and Green (2001) indicate that a wide variety of economic announcements affect U.S.

Treasury bond prices, with labour market, inflation and durable goods orders data having the largest impact.

Commodities are not financial assets, but these results are relevant for our study given the relationship between commodity prices and some...
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