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The dynamics of commodity prices

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  • CHRIS BROOKS
  • MARCEL PROKOPCZUK

Abstract

In this paper we study the stochastic behavior of the prices and volatilities of a sample of six of the most important commodity markets and we compare these properties with those of the equity market. we observe a substantial degree of heterogeneity in the behavior of the series. Our findings show that it is inappropriate to treat different kinds of commodities as a single asset class as is frequently the case in the academic literature and in the industry. We demonstrate that commodities can be a useful diversifier of equity volatility as well as equity returns. Options pricing and hedging applications exemplify the economic impacts of the differences across commodities and between model specifications.

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File URL: http://hdl.handle.net/10.1080/14697688.2013.769689
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

Volume (Year): 13 (2013)
Issue (Month): 4 (March)
Pages: 527-542

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Handle: RePEc:taf:quantf:v:13:y:2013:i:4:p:527-542

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Cited by:
  1. Symeonidis, Lazaros & Prokopczuk, Marcel & Brooks, Chris & Lazar, Emese, 2012. "Futures basis, inventory and commodity price volatility: An empirical analysis," Economic Modelling, Elsevier, vol. 29(6), pages 2651-2663.
  2. Joshua C.C. Chan & Angelia L. Grant, 2014. "Issues in Comparing Stochastic Volatility Models Using the Deviance Information Criterion," CAMA Working Papers 2014-51, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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