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The determinants of extreme commodity prices

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  • Karlygash Kurlbayeva
  • Samuel Malone

Abstract

Fat-tailed commodity price innovations are well-documented in the literature and long recognized as disruptive for consumers and producers, yet little is known about what factors drive such extreme events. Utilizing a wide range of factors from the economics and finance literature and quantile regression techniques, we shed light on this issue. Our models explain more variation in extreme than in median price innovations. Common global financial and demand factors account for a greater proportion of extreme daily spot price variations than do commodity-specific factors such as basis and open interest. Financialization of commodity markets, via significant and increasing co-variation of extreme spot price innovations with US equity market and trade-weighted US dollar returns, appears to be a major driver of extreme events in the 2000-2009 period.

Suggested Citation

  • Karlygash Kurlbayeva & Samuel Malone, 2012. "The determinants of extreme commodity prices," OxCarre Working Papers 096, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    • Handle: RePEc:oxf:oxcrwp:096
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    References listed on IDEAS

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    Cited by:

    1. Karol Szafranek, 2015. "Financialisation of the commodity markets. Conclusions from the VARX DCC GARCH," EcoMod2015 8554, EcoMod.

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    More about this item

    Keywords

    commodities price returns; extreme dependence; quantile regressions;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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