On the macroeconomic fundamentals of long-term volatilities and dynamic correlations in COMEX copper futures

ArXiv ID: 2409.08355 “View on arXiv”

Authors: Unknown

Abstract

This paper examines the influence of low-frequency macroeconomic variables on the high-frequency returns of copper futures and the long-term correlation with the S&P 500 index, employing GARCH-MIDAS and DCC-MIDAS modeling frameworks. The estimated results of GARCH-MIDAS show that realized volatility (RV), level of interest rates (IR), industrial production (IP) and producer price index (PPI), volatility of Slope, PPI, consumer sentiment index (CSI), and dollar index (DI) have significant impacts on Copper futures returns, among which PPI is the most efficient macroeconomic variable. From comparison among DCC-GARCH and DCC-MIDAS model, the added MIDAS filter of PPI improves the model fitness and have better performance than RV in effecting the long-run relationship between Copper futures and S&P 500.

Keywords: GARCH-MIDAS, DCC-MIDAS, Realized Volatility (RV), Copper Futures, Macroeconomic Variables, Commodities

Complexity vs Empirical Score

• Math Complexity: 7.5/10
• Empirical Rigor: 6.0/10
• Quadrant: Holy Grail
• Why: The paper employs advanced econometric models like GARCH-MIDAS and DCC-MIDAS, which involve complex time-series decompositions and mixed-frequency frameworks (high math). It uses real-world financial and macroeconomic data (copper futures, S&P 500, macro indicators) for empirical analysis with model comparisons, indicating significant data and implementation efforts (moderate-high rigor).

  flowchart TD
    A["Research Goal<br>Examine low-frequency macroeconomic<br>influence on copper futures returns<br>and S&P 500 correlation"] --> B{"Data & Methodology"}
    
    B --> C1["High-Frequency Data<br>Copper Futures Returns"]
    B --> C2["Low-Frequency Data<br>Macro Variables: RV, IR, IP, PPI, CSI, DI"]
    
    C1 & C2 --> D["Modeling Process<br>GARCH-MIDAS & DCC-MIDAS"]
    
    D --> E{"Key Findings & Outcomes"}
    
    E --> F1["GARCH-MIDAS Results<br>PPI most significant macro variable<br>RV, IR, IP also significant"]
    E --> F2["DCC-MIDAS Results<br>PPI-MIDAS improves model fitness<br>Superior to RV for long-run<br>Copper-S&P 500 relationship"]