Volatility research of nickel futures and spot prices based on copula-GARCH model

Abstract

Nickel, an essential strategic emerging mineral in China, plays a vital role in promoting the development of the new energy vehicle industry and protecting the security of energy resources. However, the linkage between international and domestic nickel futures markets and the spot market is increasing. It is necessary to analyze and study the correlation characteristics and influence mechanisms to help investors avoid risks and judge the market situation which will improve the risk control ability and promote the steady development of the domestic market. Therefore, from the perspective of international and domestic markets and based on the yield sequence of the nickel futures prices and the spot prices, the study first discusses the characteristics of the volatility aggregation effect and asymmetries of the nickel futures and spot prices. Second, select an appropriate GARCH model to fit the marginal distribution sequence of the yields. Third, use the Copula function to connect the financial time series to find the correlation. The results indicate that the Copula-GARCH model can better fit the tail correlation between nickel futures market and spot market. Finally, we put forward policy recommendations for strengthening and improving the domestic nickel futures market, actively participating in the international competition mechanism, and preventing and controlling the risk of market price fluctuations.