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Examining the Common Dynamics of Commodity Futures Prices

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  • Christian Gross

Abstract

We investigate the extent and dynamic nature of co-movement in daily futures prices of 18 non-energy commodities over the period 1994-2016. Our analysis provides evidence that co-movement between individual commodities and between commodities and outside financial markets varies strongly over time and that economic events play a key role in shaping the dynamics of co-movement. Our main findings suggest a steady rise in the co-movement of commodity returns between 2004 and 2010, with clear peaks during the period of global financial turmoil, but a steep decline in co-movement after 2013. We also find that overall connectedness of commodity futures markets to shocks in financial markets shows an increasing trend after 2004. Using several risk measures we show that financial investors' risk aversion affects the systematic component of commodity futures returns.

Suggested Citation

  • Christian Gross, 2017. "Examining the Common Dynamics of Commodity Futures Prices," CQE Working Papers 6317, Center for Quantitative Economics (CQE), University of Muenster.
    • Handle: RePEc:cqe:wpaper:6317
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    More about this item

    Keywords

    Commodity futures markets; connectedness; co-movement; financialization; common factors;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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