Common Factors in Commodity Futures Curves

67 Pages Posted: 1 Feb 2015 Last revised: 13 Dec 2017

See all articles by Dennis Karstanje

Dennis Karstanje

Erasmus University Rotterdam; Tinbergen Institute

Michel van der Wel

Erasmus University Rotterdam; CREATES; ERIM; Tinbergen Institute

Dick J. C. van Dijk

Erasmus University Rotterdam - Erasmus School of Economics - Econometric Institute; ERIM

Date Written: December 8, 2017

Abstract

Literature studying comovement in commodity prices provides mixed evidence for whether commodity markets are segmented or driven by common factors. We provide a joint framework to study comovement across 24 of the most traded commodities over 20 years. The framework benefits from using the whole commodity futures curve, not just the nearest futures contract. Using all curve data we find that there is a strong comovement, though this is mostly due to sector commonalities. Furthermore, the importance of a common market factor is overestimated when using only the nearest futures data. Both these findings shed light on the contradicting conclusions in existing literature. Additionally we find that the importance of the common factors varies over time, with a stronger factor structure arising in recent years.

Keywords: Commodity futures prices, comovement, term structure, dynamic Nelson Siegel model

JEL Classification: G12, G13

Suggested Citation

Karstanje, Dennis and van der Wel, Michel and van Dijk, Dick J.C., Common Factors in Commodity Futures Curves (December 8, 2017). Available at SSRN: https://ssrn.com/abstract=2558014 or http://dx.doi.org/10.2139/ssrn.2558014

Dennis Karstanje (Contact Author)

Erasmus University Rotterdam ( email )

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

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Michel Van der Wel

Erasmus University Rotterdam ( email )

Burg. Oudlaan 50
Rotterdam, NL 3062 PA
Netherlands

CREATES ( email )

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

ERIM ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Dick J.C. Van Dijk

Erasmus University Rotterdam - Erasmus School of Economics - Econometric Institute

P.O. Box 1738
3000 DR Rotterdam
Netherlands

ERIM ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1263 (Phone)
+31 10 4089162 (Fax)

HOME PAGE: http://people.few.eur.nl/djvandijk

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