Do global oil price shocks affect Indian metal market?

Abstract

The main objective of this paper is to investigate the spillover effect of global crude oil prices on Indian metal market using dynamic conditional correlation generalized autoregressive conditional heteroskedasticity models. The study considers Indian metal market, Multi Commodity Exchange of India Limited METAL index and two precious metals gold and silver, and three industrial metals aluminium, copper and zinc over the period from 1 June 2006 to 31 March 2017. The results of the study show moderate co-movement between West Texas Intermediate (WTI) crude oil and Indian metal market. Precious metals gold and silver do not show either upward nor downward trend even in global financial crisis 2008–2009 while industrial metals aluminium, copper and zinc are weakly correlated to crude oil prices. In addition, it is found that global crude oil prices have short-term as well as long-term memory effect on Indian metal market and metal prices. The study presents the case for diverse stakeholders to improve strategic oil reserves for stabilizing oil prices during global turmoil. Also, policy makers and practitioners may draw meaningful conclusions from findings of the present study to improve future market for stabilizing spot prices of metals while operating in Indian metal markets.