Testing Efficiency of the Copper Futures Market: New Evidence from London Metal Exchange

This paper investigates the joint hypothesis of market efficiency and unbiasedness of futures prices for the copper futures contract traded on the London Metal Exchange. This contract is of particular importance given the usage and properties of the underlying commodity and its highest share of trading during the last decade, in an exchange which is the centre of the world’s trading in copper. The data contain prices from two different copper futures contracts (three and fifteen months maturity) covering the decade of 1990s, a very volatile and turbulent period for the copper market worldwide. Unlike previous studies, it tests for both long-run and short-run efficiency using cointegration and error correction model. Our results show that the market is not efficient and do not provide unbiased estimates of future copper spot prices, which has important implications for the users of this market.

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