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Revisiting the excess co-movements of commodity prices in a data-rich environment

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  • Le Pen, Yannick
  • Sévi, Benoît

Abstract

We reinvestigate the issue of excess comovements of commodity prices initially raised in Pindyck and Rotemberg (1990). While Pindyck and Rotemberg and following contributions consider this issue using an arbitrary set of control variables, we develop our analysis using recent development in large approximate factor models so that a richer information set can be considered. This ensures that fundamentals, a necessary concept for any excess comovement analysis, are modelled as well as possible. We then consider different measures of correlation to assess comovement and we provide evidence of excess comovement for a set of 8 seemingly unrelated commodities. Our results indicate that excess comovement in returns does exist even when the issue of heteroscedasticity is considered. We extend our analysis to the excess comovement of volatilities and show that, contrary to the case of returns, comovement vanishes once the effect of fundamentals have been taken out.

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Bibliographic Info

Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/6800.

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Date of creation: Sep 2010
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Handle: RePEc:dau:papers:123456789/6800

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Keywords: spillover index; heteroscedasticity-corrected correlation; factor models; commodity excess comovement hypothesis;

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References

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  1. La crise 2007-2008 : le marché du riz
    by geoffreylorre@gmail.com (Geoffrey Lorre) in BS Initiative on 2014-04-22 00:00:00
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  1. 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., Agricultural and Applied Economics Association 150119, Agricultural and Applied Economics Association.

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