Jumps in Commodity Markets

Journal of Commodity Markets, Vol. 13, 2019

40 Pages Posted: 22 Nov 2017 Last revised: 22 Mar 2019

See all articles by Duc Binh Benno Nguyen

Duc Binh Benno Nguyen

Leibniz Universität Hannover - Faculty of Economics and Management

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Date Written: September 28, 2018

Abstract

This paper investigates price jumps in commodity markets. We find that jumps are rare and extreme events but occur less frequently than in stock markets. Nonetheless, jump correlations across commodities can be high depending on the commodity sectors. Energy, metal and grains commodities show high jump correlations while jumps of meats and softs commodities are barely correlated. Looking at crossmarket correlations, we find that returns of commodities co-move with the stock market, while jumps can be diversified. Most commodities are strong hedges for U.S. Dollar returns but weak hedges for U.S. Dollar jumps. Most commodities act as both return and jump hedges for Treasury notes.

Keywords: Commodities, Jump Risk, Tail Risk, Hedge

JEL Classification: G10, G11, G13, Q02

Suggested Citation

Nguyen, Duc Binh Benno and Prokopczuk, Marcel, Jumps in Commodity Markets (September 28, 2018). Journal of Commodity Markets, Vol. 13, 2019. Available at SSRN: https://ssrn.com/abstract=3074540 or http://dx.doi.org/10.2139/ssrn.3074540

Duc Binh Benno Nguyen (Contact Author)

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

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