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The dynamics of commodity return comovements

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  • Marcel Prokopczuk
  • Chardin Wese Simen
  • Robert Wichmann

Abstract

We compare factor models with respect to their ability to explain commodity futures return comovements. A simple one‐factor model based on the first principal component extracted from a panel of commodity returns outperforms a macroeconomic model, and explains most of the realized comovements. We find that intersectoral correlations display more time variations than intrasectoral correlations. Dissecting the evidence further, we find that comovements are driven by the variation of the factor as opposed to exposure to it. Our results cast doubt on the persistence of the effects of financialization and emphasize the importance of the dynamics of the factor variance.

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  • Marcel Prokopczuk & Chardin Wese Simen & Robert Wichmann, 2021. "The dynamics of commodity return comovements," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(10), pages 1597-1617, October.
    • Handle: RePEc:wly:jfutmk:v:41:y:2021:i:10:p:1597-1617
    DOI: 10.1002/fut.22222
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    References listed on IDEAS

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    2. Gong, Xu & Xu, Jun, 2022. "Geopolitical risk and dynamic connectedness between commodity markets," Energy Economics, Elsevier, vol. 110(C).
    3. Mário Correia Fernandes & José Carlos Dias & João Pedro Vidal Nunes, 2024. "Performance comparison of alternative stochastic volatility models and its determinants in energy futures: COVID‐19 and Russia–Ukraine conflict features," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(3), pages 343-383, March.

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