RT Journal Article
SR Electronic
T1 Indexing Covariation in Base-Metals Prices
JF The Journal of Index Investing
FD Institutional Investor Journals
SP 87
OP 93
DO 10.3905/jii.2014.5.3.087
VO 5
IS 3
A1 Nilanjan Ghosh
A1 Neha Sinha
A1 Siddhant Jhunjhunwala
YR 2014
UL https://pm-research.com/content/5/3/87.abstract
AB A nonferrous base-metals index representative of the physical and futures market of the constituent metals (aluminium, copper, zinc, lead, tin, and nickel) is constructed using principal component analysis. The unique mathematical core to construction aims to capture maximum covariation in the metals basket and avoid subjectivity in weight assignment. The constructed index is evaluated to gauge usefulness to stakeholders. The index fares well on investment parameters, allows near-perfect hedge-to-price risk, and works as an information variable by acting as a lead indicator to industrial production. Notably, the period of analysis follows the economic turmoil of 2008–2009, enhancing the relevance of this study.TOPICS: Mutual funds/passive investing/indexing, commodities, statistical methods