Citation:
A. Angus, M. Rivas Casado and D. Fitzsimons. Exploring the usefulness of a simple linear regression model for understanding
price movements of selected recycled materials in UK. Conservation and Recycling, Volume 60, March 2012, Pages 10-19
Abstract:
The price volatility of recycled materials exposes many different organisations
to financial and regulatory risk. These risks can be partially mitigated by
improved understanding of price volatility using econometric models, although
these have tended to be sophisticated autoregressive models, beyond the
analytical capability or cost structure of the average market participant. In
this context, this study explores the use of a simple linearregression model to
understand the behaviour of prices for recycled plastic, recovered paper and
glass, based on the price of their primary inputs, with a specific focus on the
UK market. The results of the simple regression model are compared with a
wavelet analysis to determine what information is lost in the trade off with
simplicity. Both models found significant relationships between the price of
crude oil/ethylene/naphtha and recycled plastics and it appears that there is no
loss in model performance by using oil as the explanatory variable, rather than
direct inputs (ethylene/naphtha). However, few correlations were found for
recovered paper and glass. Initial findings from the wavelet analysis suggest
that since 2004 the oil price has become more closely linked to the price of
recycled plastics. It must be noted that this study is exploratory and
particular dynamics of UK markets for recycled materials may affect price
development in a way that would not be repeated on international markets.
