Theory of Storage, Inventory and Volatility in the （理论的存储、库存和波动性）.pdf

Theory of Storage, Inventory and Volatility in the   LME Base Metals  Hélyette Geman William O. Smith1 Director, Commodity Finance Centre Doctoral Programme Birkbeck, University of London ESCP Birkbeck, University of London Europe   Abstract  The theory of storage, as related to commodities, makes two predictions involving the quantity of the commodity held in inventory. When inventory is low (i.e. , a situation of scarcity), spot prices will exceed futures prices, and spot price volatility will exceed futures price volatility. Conversely, during periods of no scarcity, both spot prices and spot price volatility will remain relatively subdued. We test these relationships for the six base metals traded on the London Metal Exchange (aluminium, copper, lead, nickel, tin and zinc), and find strong validation for the theory. Moreover, and in contrast to widespread claims that Chinese inventory data are opaque, we find that including Chinese inventories strengthens the relationship further. We also introduce the concepts of excess volatility, inventory- implied spot price and inventory-implied spot volatility and illustrate some applications. JEL Categories: B 26, C22, G13, G31, N50, Q31 Keywords: Working curve, storage, base metals, inventory, volatility, convenience yield, forward curve Forthcoming in Resources Policy, 2012 1 1. Introduction  The aim of this paper is to examine the six base metals traded on the LME (aluminium, copper, lead, nickel, tin and zinc), and examine the relationship between price, volatility and the quantity held in inventory, for both the spot and futures markets. A relationship, believed to exist for many storable commodities, is predicted by the Theory of