An empirical test for parities between metal prices at the LME

A stock price parity reflects the known resources of the commodities, while a flow parity concerns short-term supplies. Prices may not only converge in the long-run to a fixed stock parity, but also move toward sequences of short-run flow equilibria. Cointegration analysis is used in an empirical test for price parities at the London Metal Exchange (LME). The analysis focuses on the behavior of 5 nonferrous metals in 1981. One cointegration relationship, or parity, is found to exist between the 5 forward metal prices on the LME over 251 trading days in 1981. The kurtosis of the cointegration relationship may come close to the normality value, while those of the individual returns may not. Unreported calculations show that this is indeed the case.