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The Return–Volatility Relation in Commodity Futures Markets

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  • Carl Chiarella
  • Boda Kang
  • Christina Sklibosios Nikitopoulos
  • Thuy‐Duong Tô

Abstract

By employing a continuous time multi‐factor stochastic volatility model, the dynamic relation between returns and volatility in the commodity futures markets is analyzed. The model is estimated by using an extensive database of gold and crude oil futures and futures options. A positive relation in the gold futures market and a negative relation in the crude oil futures market subsist, especially over periods of high volatility principally driven by market‐wide shocks. The opposite relation holds over quiet periods typically driven by commodity‐specific effects. According to the proposed convenience yield effect, normal (inverted) commodity futures markets entail a negative (positive) relation. © 2015 Wiley Periodicals, Inc. Jrl Fut Mark 36:127–152, 2016

Suggested Citation

  • Carl Chiarella & Boda Kang & Christina Sklibosios Nikitopoulos & Thuy‐Duong Tô, 2016. "The Return–Volatility Relation in Commodity Futures Markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(2), pages 127-152, February.
    • Handle: RePEc:wly:jfutmk:v:36:y:2016:i:2:p:127-152
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    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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