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On the divers of commodity co-movement: Evidence from biofuels

Author

Listed:
  • Augusto Ruperez Micola
  • Francisco Penaranda

    (LSF)

Abstract

We use the recent introduction of biofuels to study the effect of industry factors on the relation-ships between wholesale commodity prices. Correlations between agricultural products and oil are strongest in the 2005-09 period, coinciding with the boom of biofuels, and remain substantial until 2011. We disentangle three possible drivers for the linkage: substitution, energy costs, and financialization. The timing and magnitude of the biofuels-to-oil relationships are different to those of other commodities, and far higher than can be justified by costs and financialization.The findings survive many robustness checks and appear in the stock market.

Suggested Citation

  • Augusto Ruperez Micola & Francisco Penaranda, 2011. "On the divers of commodity co-movement: Evidence from biofuels," LSF Research Working Paper Series 11-14, Luxembourg School of Finance, University of Luxembourg.
  • Handle: RePEc:crf:wpaper:11-14
    as

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    File URL: http://wwwen.uni.lu/content/download/53158/634724/file/On%20the%20drivers%20of%20commodity%20co-movement_Evidents%20from%20biofuels_2011%20(14).pdf
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    More about this item

    Keywords

    biofuels; commodities; co-movement; ethanol; oil; structural breaks.;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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