Factor Structure in Commodity Futures Return and Volatility

64 Pages Posted: 14 Sep 2014 Last revised: 26 Jun 2017

Peter Christoffersen

University of Toronto - Rotman School of Management; Copenhagen Business School; University of Aarhus - CREATES

Asger Lunde

University of Aarhus - School of Economics and Management; CREATES

Kasper Olesen

CREATES; Bank of America - Bank of America Merrill Lynch

Date Written: May 8, 2017

Abstract

We uncover stylized facts of commodity futures price and volatility dynamics in the post-financialization period and find a factor structure in daily commodity volatility that is much stronger than the factor structure in returns. The common factor in commodity volatility relates to stock market volatility as well as to the business cycle. Model-free realized commodity betas with the stock market were high during 2008-2010 but have since returned to the pre-crisis level close to zero. We conclude that, while commodity markets appear segmented from the equity market when considering only returns, commodity volatility indicates a nontrivial degree of market integration.

Keywords: Factor structure, financial volatility, beta, high-frequency data, commodities, financialization

JEL Classification: G13, Q02

Suggested Citation

Christoffersen, Peter and Lunde, Asger and Olesen, Kasper, Factor Structure in Commodity Futures Return and Volatility (May 8, 2017). Rotman School of Management Working Paper No. 2495779. Available at SSRN: https://ssrn.com/abstract=2495779 or http://dx.doi.org/10.2139/ssrn.2495779

Peter Christoffersen (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5P 3C4
Canada
416-946-5511 (Phone)

HOME PAGE: http://www.christoffersen.com

Copenhagen Business School

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

University of Aarhus - CREATES

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Asger Lunde

University of Aarhus - School of Economics and Management ( email )

Aarhus
Denmark

CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Kasper Olesen

CREATES ( email )

Fuglesangs Alle 4
Aarhus V, 8210
Denmark

Bank of America - Bank of America Merrill Lynch ( email )

United States

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