Increasing Trends in the Excess Comovement of Commodity Prices

38 Pages Posted: 15 Feb 2016

See all articles by Kazuhiko Ohashi

Kazuhiko Ohashi

Hitotsubashi University - Graduate School of International Corporate Strategy

Tatsuyoshi Okimoto

Australian National University

Multiple version iconThere are 3 versions of this paper

Date Written: February 14, 2016

Abstract

We investigate how the excess comovement of commodity prices, that is, the correlation in commodity returns after filtering out common fundamental shocks, has changed over the past three decades by developing the smooth-transition dynamic conditional correlation model that can capture long-run trends and short-run dynamics of correlation simultaneously. Using data from 1983 to 2011, we find that significant increasing longrun trends in excess comovement have appeared since around 2000. We confirm that these increasing trends are neither an artifact of the financial crisis after the bankruptcy of Lehman Brothers in September 2008 nor the time-varying sensitivities of commodity returns to common fundamental shocks. Moreover, we find that no significant increasing trends exist in the excess comovement among off-index commodities and that the surge of global demand alone cannot explain the increasing trends. These findings provide additional evidence for the timing and scope of the recent increasing commodity-return correlations that suggest the influence of the financialization of commodity markets starting around 2000.

Keywords: excess comovement, commodity return, time-varying correlation, smooth transition, regime change, financialization

JEL Classification: C32, C51, G15

Suggested Citation

Ohashi, Kazuhiko and Okimoto, Tatsuyoshi, Increasing Trends in the Excess Comovement of Commodity Prices (February 14, 2016). CAMA Working Paper No. 9/2016 , Available at SSRN: https://ssrn.com/abstract=2732409 or http://dx.doi.org/10.2139/ssrn.2732409

Kazuhiko Ohashi

Hitotsubashi University - Graduate School of International Corporate Strategy ( email )

Tokyo 101-8439, Chiyoda-ku
Japan

Tatsuyoshi Okimoto (Contact Author)

Australian National University ( email )

Canberra, Australian Capital Territory 2601
Australia

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