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Volatility Persistence in Commodity Futures:Inventory and Time-to-Delivery Effects

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  • Karali, Berna
  • Thurman, Walter N.

Abstract

Most financial asset returns exhibit volatility persistence. We investigate this phenomenon in the context of daily returns in commodity futures markets. We show that the time gap between the arrival of news to the markets and the delivery time of futures contracts is the fundamental variable in explaining volatility persistence in the lumber futures market. We also find an inverse relationship between inventory levels and lumber futures volatility.

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File URL: http://purl.umn.edu/37612
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Bibliographic Info

Paper provided by NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management in its series 2008 Conference, April 21-22, 2008, St. Louis, Missouri with number 37612.

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Date of creation: 2008
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Handle: RePEc:ags:nccest:37612

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Related research

Keywords: volatility persistence; theory of storage; volatility; futures markets; lumber; Agricultural Finance;

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References

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  1. Karali, Berna & Thurman, Walter N., 2007. "Announcement Effects and the Theory of Storage: An Empirical Study of Lumber Futures," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 9865, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  3. Andersen, Torben G. & Bollerslev, Tim, 1997. "Intraday periodicity and volatility persistence in financial markets," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 115-158, June.
  4. Ng, Victor K & Pirrong, Stephen Craig, 1994. "Fundamentals and Volatility: Storage, Spreads, and the Dynamics of Metals Prices," The Journal of Business, University of Chicago Press, vol. 67(2), pages 203-30, April.
  5. Engle, Robert F, 1998. "Macroeconomic Announcements and Volatility of Treasury Futures," University of California at San Diego, Economics Working Paper Series qt7rd4g3bk, Department of Economics, UC San Diego.
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Cited by:
  1. Power, Gabriel J. & Turvey, Calum G., 2008. "On Term Structure Models of Commodity Futures Prices and the Kaldor-Working Hypothesis," 2008 Conference, April 21-22, 2008, St. Louis, Missouri 37608, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.

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