The Asymmetric Return - Volatility Relationship of Commodity Price Changes

23 Pages Posted: 1 Apr 2019

See all articles by Dirk G. Baur

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Thomas Dimpfl

University of Tuebingen - Department of Statistics and Econometrics

Date Written: April 19, 2017

Abstract

There is a well documented asymmetric return - volatility effect of equity returns, that is, negative shocks increase volatility by more than positive shocks. This paper analyzes the return - volatility relationship of commodity price changes and finds an inverted asymmetric effect with a tendency to weaken and converge towards an equity-like effect since the mid 2000s. The change in the asymmetric relationship coincides with the financialization of commodity markets and thus provides an alternative perspective for this phenomenon. We argue that storage and real demand related price movements are increasingly dominated by finance-related price movements where positive commodity price changes provide positive signals for the economy whilst negative price changes provide negative signals and increase volatility.

Keywords: asymmetric volatility, leverage effect, volatility feedback effect, commodities; financialization

Suggested Citation

Baur, Dirk G. and Dimpfl, Thomas, The Asymmetric Return - Volatility Relationship of Commodity Price Changes (April 19, 2017). Available at SSRN: https://ssrn.com/abstract=3348817 or http://dx.doi.org/10.2139/ssrn.3348817

Dirk G. Baur

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Thomas Dimpfl (Contact Author)

University of Tuebingen - Department of Statistics and Econometrics ( email )

Germany

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