IDEAS home Printed from https://ideas.repec.org/a/taf/eurjfi/v23y2017i12p1107-1128.html
   My bibliography  Save this article

The cyclical behaviour of commodities

Author

Listed:
  • Marcelo Pereira
  • Sofia B. Ramos
  • José G. Dias

Abstract

Commodities are known to exhibit cyclical behaviour. This paper studies the dynamics of commodities regimes and their implications for portfolio diversification. Using an extension of the regime-switching model, we find that the 12 commodities studied can be clustered into four groups with different regime dynamics, demonstrating that the asset class behaviour of commodities is far from homogeneous. The existence of two regimes is transversal to the assets studied. One regime is marked by high volatility and the other by low volatility. In both regimes, most of the commodities exhibit returns that are not statistically significantly different from those of the stock market regime. The exceptions are oil and natural gas during the low-volatility regime. The analysis of regime synchronization shows that our stock market proxy has low synchronization with commodities, which suggests potential diversification value from adding commodities to an equity portfolio. Based on portfolio optimization, we find that commodities are included in the optimal portfolios in the bull and bear regime of the Standard & Poor’s 500 index. The benefits of diversifying into commodities are particularly strong in the bear stock market regime.

Suggested Citation

  • Marcelo Pereira & Sofia B. Ramos & José G. Dias, 2017. "The cyclical behaviour of commodities," The European Journal of Finance, Taylor & Francis Journals, vol. 23(12), pages 1107-1128, September.
    • Handle: RePEc:taf:eurjfi:v:23:y:2017:i:12:p:1107-1128
    DOI: 10.1080/1351847X.2016.1205505
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1351847X.2016.1205505
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/1351847X.2016.1205505?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yip, Pick Schen & Brooks, Robert & Do, Hung Xuan & Nguyen, Duc Khuong, 2020. "Dynamic volatility spillover effects between oil and agricultural products," International Review of Financial Analysis, Elsevier, vol. 69(C).
    2. Hernandez, Jose Arreola & Shahzad, Syed Jawad Hussain & Sadorsky, Perry & Uddin, Gazi Salah & Bouri, Elie & Kang, Sang Hoon, 2022. "Regime specific spillovers across US sectors and the role of oil price volatility," Energy Economics, Elsevier, vol. 107(C).
    3. Nicholas Apergis & Tasawar Hayat & Tareq Saeed, 2021. "Cyclicality of commodity markets with respect to the U.S. economic policy uncertainty based on granger causality in quantiles," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 50(1), February.
    4. Constandina Koki & Stefanos Leonardos & Georgios Piliouras, 2020. "Exploring the Predictability of Cryptocurrencies via Bayesian Hidden Markov Models," Papers 2011.03741, arXiv.org, revised Dec 2020.
    5. Koki, Constandina & Leonardos, Stefanos & Piliouras, Georgios, 2022. "Exploring the predictability of cryptocurrencies via Bayesian hidden Markov models," Research in International Business and Finance, Elsevier, vol. 59(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:23:y:2017:i:12:p:1107-1128. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REJF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.