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Commodities Inventory Effect

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  • Jean-François Carpantier

    ()
    (CREA, University of Luxembourg)

  • Arnaud Dufays

    ()
    (Université Catholique de Louvain)

Abstract

Does commodity price volatility increase when inventories are low? We are the first ones to document this relationship. To that aim, we estimate asym- metric volatility models for a large set of commodities over 1994-2011. Since inventories are hard to measure, especially for high frequency data, we use positive return shocks as a new original proxy for inventories and find that asymmetric GARCH models reveal a significant inventory effect for many commodities. The results look robust. They hold if we allow the uncondi- tional variance to vary over time and if we relax the parametric form.

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Bibliographic Info

Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 13-07.

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Date of creation: 2013
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Handle: RePEc:luc:wpaper:13-07

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Keywords: Asymmetries; Commodities; Inventory; Spline GARCH; VaR.;

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Cited by:
  1. PIERRET, Diane, 2013. "The systemic risk of energy markets," CORE Discussion Papers 2013018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. BAUWENS, Luc & HAFNER, Christian & LAURENT, Sébastien, 2011. "Volatility models," CORE Discussion Papers 2011058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. CARPANTIER, Jean-François & SAMKHARADZE, Besik, 2012. "The asymmetric commodity inventory effect on the optimal hedge ratio," CORE Discussion Papers 2012020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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