Metal Returns, Stock Returns and Stock Market Volatility

  • Mauricio Zevallos Universidade Estadual de Campinas
    Department of Statistics, University of Campinas, Brazil. E-mail: amadeus@ime.unicamp.br
  • Carlos del Carpio EFL Global LTD
    EFL Global LTD, Lima, Peru. E-mail: carlos.delcarpio@eflglobal.com
Keywords: Comovements, Peruvian stock market

Abstract

Given the extensive participation of mining stocks in the Peruvian stock market, the Lima Stock Exchange (BVL) provides an ideal setting for exploring both the impact of metal returns on mining stock returns and stock market volatility, and the comovements between mining stock returns and metal returns. This research is a first attempt to explore these issues using international metal prices and the prices of the most important mining stocks on the BVL and the IGBVL index. To achieve this, we use univariate GARCH models to model individual volatilities, and the Exponentially Weighted Moving Average (EWMA) method and multivariate GARCH models with time-varying correlations to model comovements in returns. We found that Peruvian mining stock volatilities mimic the behavior of metal volatilities and that there are important correlation levels between metals and mining stock returns. In addition, we found time-varying correlations with distinctive behavior in different periods, with rises potentially related to international and local historical events.

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How to Cite
Zevallos, M., & Carpio, C. del. (2015). Metal Returns, Stock Returns and Stock Market Volatility. Economia, 38(75), 101-122. Retrieved from http://revistas.pucp.edu.pe/index.php/economia/article/view/13734