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Term Structure of Futures Prices and Expected Mean Reversion in Base Metal Prices
2005
Investment Management & Financial Innovations
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We examine expected mean reversion in six base metal prices using a unique LME dataset consisting of prices for futures contracts with maturity dates spanning from 1 to 27 months. We document significant evidence of mean reversion in spot prices for all these metals, although the magnitude of mean reversion differs across these markets. We also find that mean reversion in metal prices arises from a positive covariation between spot prices and implied cash flow yields rather from a negative
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