Modelling the Multivariate Dynamic Dependence Structure of Commodity Futures Portfolios

Journal of Commodity Markets, Vol. 6, No. 1, 66-87, 2017

55 Pages Posted: 8 Sep 2015 Last revised: 15 Jul 2017

Matthias Aepli

University of St. Gallen - School of Finance

Roland Füss

University of St. Gallen - School of Finance

Tom Erik Henriksen

NMBU School of Economics and Business

Florentina Paraschiv

Norwegian University of Science and Technology, Faculty of Economics and Management, NTNU Business School; University of St. Gallen - School of Finance

Date Written: March 28, 2017

Abstract

This paper examines the time-varying dependence structure of commodity futures portfolios based on multivariate dynamic copula models. The importance of accounting for time-variation is emphasized in the context of the Basel traffic light system. We enhance the exibility of this structure by modeling regimes with multivariate mixture copulas and by applying the dynamic conditional correlation model (DCC) to multivariate elliptical copulas. The most suitable dynamic dependence model in terms of in-sample and out-of sample valuation is the dynamic Student-t-Clayton mixture copula, followed by the dynamic Student-t copula, and the dynamic Gaussian-Clayton mixture. In comparison to the multivariate normal model, the dynamic Clayton copula also scales down significantly the number of VAR(99%) violations during the 2007/08 financial crisis period. The predictive performance of our multivariate dynamic copula models confirms its superiority over bivariate regime-switching copula models for various states of the economy.

Keywords: Multivariate dynamic copulas; regime-switching copulas; dynamic conditional correlation (DCC) model; forecast performance; commodity portfolio

JEL Classification: C32, C51, C53

Suggested Citation

Aepli, Matthias and Füss, Roland and Henriksen, Tom Erik and Paraschiv, Florentina, Modelling the Multivariate Dynamic Dependence Structure of Commodity Futures Portfolios (March 28, 2017). Journal of Commodity Markets, Vol. 6, No. 1, 66-87, 2017. Available at SSRN: https://ssrn.com/abstract=2657383 or http://dx.doi.org/10.2139/ssrn.2657383

Matthias Aepli

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Roland Füss

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland
+41 (0)71 224 70 42 (Phone)
+41 (0)71 224 70 88 (Fax)

HOME PAGE: http://www.sbf.unisg.ch/en/Lehrstuehle/Lehrstuhl_Fuess.aspx

Tom Erik Henriksen

NMBU School of Economics and Business ( email )

PO Box 5003
1432 Ås
Norway

Florentina Paraschiv (Contact Author)

Norwegian University of Science and Technology, Faculty of Economics and Management, NTNU Business School ( email )

Klæbuveien 72
Trondheim, NO-7030
Norway

University of St. Gallen - School of Finance ( email )

Klæbuveien 72
Trondheim, NO-7030
Norway

Register to save articles to
your library

Register

Paper statistics

Downloads
168
rank
165,355
Abstract Views
649
PlumX