Modes of fluctuation in metal futures prices

This article examines the stochastic structure of metal futures prices. First, this article presents a stationary multi‐factor model of fluctuations in the futures price curve. Next, the model is extended to allow for time variation in the factors or “modes” of fluctuation. The model is estimated using futures price data for three very different metals: copper, which is an industrial metal; gold, which is a precious metal; and silver, which is in transition from a precious metal to an industrial metal. The estimation results show that the shapes and importance of the various modes of fluctuation for gold and silver are much different from those for copper. Gold and silver futures price curves can be adequately modeled as a time‐varying one‐factor model. Copper, however, has a more complicated structure and should be modeled as a time‐varying two‐ or three‐factor model. © 2000 John Wiley & Sons, Inc. Jrl Fut Mark 20:219–242, 2000