ABSTRACT
This chapter explains the potential risk in the Chinese copper market by applying a parametric approach based on Generalized Autoregressive Conditional Heteroskedasticity (GARCH) type models. Also, it explains the information and risk spillover effects between the copper futures market and the copper spot market. A large volume of study has been done on the relationship between the futures market and the spot market. Garbade and Solber present a model to examine the price discovery role of futures prices and the effect of arbitrage on price changes in spot and the futures commodity markets. Specifically, we study the Value at Risk (VaR) of the Chinese copper futures market and spot market by applying a parametric approach based on Threshold GARCH (TGARCH) and GARCH models. In addition, the chapter investigates the information spillover effects between the futures market and the spot market by employing a linear Granger causality test, and Granger causality tests in mean, volatility and risk respectively.
