IDEAS home Printed from https://ideas.repec.org/p/aah/create/2014-31.html
   My bibliography  Save this paper

Factor Structure in Commodity Futures Return and Volatility

Author

Listed:
  • Peter Christoffersen

    () (University of Toronto and CREATES)

  • Asger Lunde

    () (Aarhus University and CREATES)

  • Kasper V. Olesen

    () (Aarhus University and CREATES)

Abstract

Using data on more than 750 million futures trades during 2004-2013, we analyze eight stylized facts of commodity price and volatility dynamics in the post financialization period. We pay particular attention to the factor structure in returns and volatility and to commodity market integration with the equity market. We find evidence of a factor structure in daily commodity futures returns. However, the factor structure in daily commodity futures volatility is even stronger than in returns. When computing model-free realized commodity betas with the stock market we find that they were high during 2008-2010 but have since returned to the pre-crisis level close to zero. The common factor in commodity volatility is nevertheless clearly related to stock market volatility. We conclude that, while commodity markets appear to again be segmented from the equity market when only returns are considered, commodity volatility indicates a nontrivial degree of market integration.

Suggested Citation

  • Peter Christoffersen & Asger Lunde & Kasper V. Olesen, 2014. "Factor Structure in Commodity Futures Return and Volatility," CREATES Research Papers 2014-31, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:create:2014-31
    as

    Download full text from publisher

    File URL: ftp://ftp.econ.au.dk/creates/rp/14/rp14_31.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Andersen, Torben G. & Bollerslev, Tim & Christoffersen, Peter F. & Diebold, Francis X., 2013. "Financial Risk Measurement for Financial Risk Management," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1127-1220, Elsevier.
    2. Herskovic, Bernard & Kelly, Bryan & Lustig, Hanno & Van Nieuwerburgh, Stijn, 2016. "The common factor in idiosyncratic volatility: Quantitative asset pricing implications," Journal of Financial Economics, Elsevier, vol. 119(2), pages 249-283.
    3. Pukthuanthong, Kuntara & Roll, Richard, 2009. "Global market integration: An alternative measure and its application," Journal of Financial Economics, Elsevier, vol. 94(2), pages 214-232, November.
    4. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Jin Wu, 2005. "A Framework for Exploring the Macroeconomic Determinants of Systematic Risk," American Economic Review, American Economic Association, vol. 95(2), pages 398-404, May.
    5. Ang, Andrew & Hodrick, Robert J. & Xing, Yuhang & Zhang, Xiaoyan, 2009. "High idiosyncratic volatility and low returns: International and further U.S. evidence," Journal of Financial Economics, Elsevier, vol. 91(1), pages 1-23, January.
    6. Ang, Andrew & Chen, Joseph, 2002. "Asymmetric correlations of equity portfolios," Journal of Financial Economics, Elsevier, vol. 63(3), pages 443-494, March.
    7. Zhang, Lan & Mykland, Per A. & Ait-Sahalia, Yacine, 2005. "A Tale of Two Time Scales: Determining Integrated Volatility With Noisy High-Frequency Data," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 1394-1411, December.
    8. Peter Reinhard Hansen & Asger Lunde, 2005. "A Realized Variance for the Whole Day Based on Intermittent High-Frequency Data," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 3(4), pages 525-554.
    9. Marta Szymanowska & Frans Roon & Theo Nijman & Rob Goorbergh, 2014. "An Anatomy of Commodity Futures Risk Premia," Journal of Finance, American Finance Association, vol. 69(1), pages 453-482, February.
    10. Daskalaki, Charoula & Kostakis, Alexandros & Skiadopoulos, George, 2014. "Are there common factors in individual commodity futures returns?," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 346-363.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Śmiech, Sławomir & Papież, Monika & Fijorek, Kamil & Dąbrowski, Marek A., 2019. "What drives food price volatility? Evidence based on a generalized VAR approach applied to the food, financial and energy markets," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 13, pages 1-32.
    2. repec:spr:fininn:v:3:y:2017:i:1:d:10.1186_s40854-017-0066-9 is not listed on IDEAS
    3. Lübbers, Johannes & Posch, Peter N., 2016. "Commodities' common factor: An empirical assessment of the markets' drivers," Journal of Commodity Markets, Elsevier, vol. 4(1), pages 28-40.

    More about this item

    Keywords

    Factor structure; financial volatility; beta; high-frequency data; commodities; financialization;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:aah:create:2014-31. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://www.econ.au.dk/afn/ .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.