The Price-Stock Relationship In The Copper Market: A Surprising Approach

The widely accepted inverse relationship between copper prices ail stocks, has been commonly used by analysts to explain the behavior of the copper market and to forecast film copper pries. However, empirical data have not shown such a clear relationship between copper prices and stacks. Existing evidence only indicates a weak tong-nut relationship that vanishes in some periods. In this paper a simple comprehensive model is provided which explains both parallel and opposite direction movements between prices and stocks. Former are explained mainly by stocks demand expansions-contractions while the latter are in essence due to increases in the supply curve. Furthermore, econometric estimations are provided, thus giving a powerful tool to forecast and explain price developments of the copper market.