Structural changes and volatility correlation in nonferrous metal market
(School of Business, Central South University, Changsha 410083, China)
Abstract: The GARCH and DCC-GARCH models are used to study the volatility aggregation and dynamic relevance of China’s three kinds of nonferrous metals (copper, aluminum and zinc) prices incorporating structural changes. The results show that copper, aluminum and zinc returns have many structure breaks points, and nonferrous metals have the great volatility risk during financial crisis. From the results of GARCH with and without structural changes, it is found that the volatility clustering of single nonferrous metal is overvalued when ignoring the structural mutation, and the return of aluminum is the most overvalued, indicating that aluminum market is more susceptible to external shock. Furthermore, it is also found that dynamic volatility correlation exists in the three prices of nonferrous metals, and the structural changes have no significant effect on the volatility correlation of the three nonferrous metals.
Key words: copper; zinc; aluminum; nonferrous metals price; structural changes; DCC-GARCH model; volatility dynamic correlation