Increasing Trends in the Excess Comovement of Commodity Prices
In this paper, we investigate whether excess correlations among seemingly unrelated commodity returns have increased recently, and if so, how they were achieved. To this end, we generalize the model of excess comovement, originated by Pindyck and Rotemberg (1990) and extended by Deb, Trivedi, and Varangis (1996), to develop the smooth-transition dynamic conditional correlation (STDCC) model that can capture long-run trends and short-run dynamics in excess comovements. Using commodity returns data from 1983 to 2011, we find that significant increasing long-run trends in excess comovements have appeared since around 2000 in all pairs of agricultural raw materials, beverages, metals, and oils. We confirm that these increasing trends are robust and are not artifacts of the recent financial crisis or changes in the effects of common macroeconomic factors. Moreover, unlike the results above, we find no significant increasing trends in excess comovements among off-index commodity returns. Those findings provide additional evidence for the recent debates about the effect of financialization on commodity-return correlations.
|Date of creation:||May 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.rieti.go.jp/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hong, Harrison & Yogo, Motohiro, 2012.
"What does futures market interest tell us about the macroeconomy and asset prices?,"
Journal of Financial Economics,
Elsevier, vol. 105(3), pages 473-490.
- Harrison Hong & Motohiro Yogo, 2011. "What Does Futures Market Interest Tell Us about the Macroeconomy and Asset Prices?," NBER Working Papers 16712, National Bureau of Economic Research, Inc.
- Ke Tang & Wei Xiong, 2010. "Index Investment and Financialization of Commodities," NBER Working Papers 16385, National Bureau of Economic Research, Inc.
- Silvennoinen, Annastiina & Thorp, Susan, 2013.
"Financialization, crisis and commodity correlation dynamics,"
Journal of International Financial Markets, Institutions and Money,
Elsevier, vol. 24(C), pages 42-65.
- Annastiina Silvennoinen & Susan Thorp, 2010. "Financialization, Crisis and Commodity Correlation Dynamics," Research Paper Series 267, Quantitative Finance Research Centre, University of Technology, Sydney.
- Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
- Robert S. Pindyck & Julio J. Rotemberg, 1988.
"The Excess Co-Movement of Commodity Prices,"
NBER Working Papers
2671, National Bureau of Economic Research, Inc.
- Erkko Etula, 2009. "Broker-dealer risk appetite and commodity returns," Staff Reports 406, Federal Reserve Bank of New York.
- R-P. Berben & W.J. Jansen, 2001.
"Comovement in International Equity Markets: a Sectoral View,"
MEB Series (discontinued)
2001-11, Netherlands Central Bank, Monetary and Economic Policy Department.
- Berben, Robert-Paul & Jansen, W. Jos, 2005. "Comovement in international equity markets: A sectoral view," Journal of International Money and Finance, Elsevier, vol. 24(5), pages 832-857, September.
- Robert-Paul Berben & W. Jos Jansen, 2003. "Comovement in international equity markets: A sectoral view," Finance 0310001, EconWPA.
- Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-50, July.
- Deb, Partha & Trivedi, Pravin K & Varangis, Panayotis, 1996. "The Excess Co-movement of Commodity Prices Reconsidered," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(3), pages 275-91, May-June.
- Lin, Chien-Fu Jeff & Terasvirta, Timo, 1994. "Testing the constancy of regression parameters against continuous structural change," Journal of Econometrics, Elsevier, vol. 62(2), pages 211-228, June.
- Kumar, Manmohan S. & Okimoto, Tatsuyoshi, 2011. "Dynamics of international integration of government securities' markets," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 142-154, January.
When requesting a correction, please mention this item's handle: RePEc:eti:dpaper:13048. 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: (NUKATANI Sorahiko)
If references are entirely missing, you can add them using this form.