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The asymmetric return-volatility relationship of commodity prices

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  • Baur, Dirk G.
  • Dimpfl, Thomas

Abstract

There is a well documented asymmetric return-volatility effect of equity returns, that is, negative shocks increase volatility by more than positive shocks. This paper analyzes the return-volatility relationship of commodity prices and finds a positive (inverted) asymmetric effect with a tendency to weaken and converge towards an equity-like effect since the mid 2000s and particularly during the global financial crisis. A comparison of the findings with equity prices also reveals a strengthening of the asymmetric effect in equity markets. The change in the asymmetric volatility effect is consistent with the financialization of commodity markets and has strong portfolio implications.

Suggested Citation

  • Baur, Dirk G. & Dimpfl, Thomas, 2018. "The asymmetric return-volatility relationship of commodity prices," Energy Economics, Elsevier, vol. 76(C), pages 378-387.
  • Handle: RePEc:eee:eneeco:v:76:y:2018:i:c:p:378-387
    DOI: 10.1016/j.eneco.2018.10.022
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    More about this item

    Keywords

    Asymmetric volatility; Commodity markets; Financialization;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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