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On the excess co-movement of commodity prices--A note about the role of fundamental factors in short-run dynamics

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  • Lescaroux, François

Abstract

Since the influential paper by Pindyck and Rotemberg (1990) [The excess co-movement of commodity prices. The Economic Journal 100, 1173-1189], there is a common belief that prices of unrelated commodities tend to move together in excess of what can be explained by fundamentals. In this paper, we consider monthly data of 51 commodities from 1980 to 2008 to confirm that raw resources exhibit co-movement at high frequencies. Nonetheless, focusing on oil and six metal prices, we present evidence that the high level of correlation between cycles of commodity prices can be explained to a large extent by common shocks to inventory levels. Once the influences of supply and demand are filtered out, it appears that the links between commodity prices are rather loose.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 37 (2009)
Issue (Month): 10 (October)
Pages: 3906-3913

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Handle: RePEc:eee:enepol:v:37:y:2009:i:10:p:3906-3913

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Web page: http://www.elsevier.com/locate/enpol

Related research

Keywords: Oil prices Commodity prices Co-movement;

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Cited by:
  1. Krätschell, Karoline & Schmidt, Torsten, 2013. "Long-run trends or short-run fluctuations What establishes the correlation between oil and food prices?," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79798, Verein für Socialpolitik / German Economic Association.
  2. Wang, Xiao & Zhang, Chuanguo, 2014. "The impacts of global oil price shocks on China׳s fundamental industries," Energy Policy, Elsevier, vol. 68(C), pages 394-402.
  3. Karoline Krätschel & Torsten Schmidt, 2012. "Long-run Trends or Short-run Fluctuations – What Establishes the Correlation between Oil and Food Prices?The Interplay of Standardized Tests and Incentives – An Econometric Analysis with Data from," Ruhr Economic Papers 0357, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  4. Gardebroek, Cornelis & Hernandez, Manuel A. & Robles, Miguel, 2013. "Market interdependence and volatility transmission among major crops," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150119, Agricultural and Applied Economics Association.
  5. Mohamed El Hedi Arouri & Shawkat Hammoudeh & Amine Lahiani & Duc Khuong Nguyen, 2013. "Long memory and structural breaks in modeling the return and volatility dynamics of precious metals," Working Papers hal-00798033, HAL.
  6. Cifarelli, Giulio & Paladino, Giovanna, 2011. "Hedging vs. speculative pressures on commodity futures returns," MPRA Paper 28229, University Library of Munich, Germany.
  7. Huang, Wen-Hsiu & Chao, Ming-Che, 2012. "The effects of oil prices on the price indices in Taiwan: International or domestic oil prices matter?," Energy Policy, Elsevier, vol. 45(C), pages 730-738.
  8. Zhang, Chuanguo & Chen, Xiaoqing, 2014. "The impact of global oil price shocks on China’s bulk commodity markets and fundamental industries," Energy Policy, Elsevier, vol. 66(C), pages 32-41.

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