TITLE:
Fluctuations in Base Metals Prices
AUTHORS:
Nguyen Bao Anh, Aggey Semenov
KEYWORDS:
Base Metals, Price Fluctuations, Investment, Risk Aversion, Metals Industry, LME, International Exchange
JOURNAL NAME:
Theoretical Economics Letters,
Vol.5 No.4,
August
18,
2015
ABSTRACT: To explain fluctuations
of base metals prices we propose a model of short-run pricing based on trade in
international exchanges. We introduce the critical tradeoff of choosing the
share of material input from risky mining extraction versus risk-free
recycling. We show that if more producers participate in the international
exchange, or producers are less risk averse, the prices of base metals
fluctuate more. If there are more traders, or producers are less risk averse,
the prices of base metals fluctuate less. These observations may shed light on
price movement during the recent financial crisis and possible future liquidity
crises.