Volatility Term Structures in Commodity Markets
Journal of Futures Markets (2020), Vol. 40(4), pp. 527-555
65 Pages Posted: 12 Dec 2019 Last revised: 14 Jan 2021
Date Written: November 22, 2019
In this study, we comprehensively examine the volatility term structures in commodity markets. We model state-dependent spillovers in principal components (PCs) of the volatility term structures of different commodities, as well as that of the equity market. We detect strong economic links and a substantial interconnectedness of the volatility term structures of commodities. Accounting for intra-commodity-market spillovers significantly improves out-of-sample forecasts of the components of the volatility term structure. Spillovers following macroeconomic news announcements account for a large proportion of this forecast power. There thus seems to be substantial information transmission between different commodity markets.
Keywords: commodities, information transmission, spillovers, volatility term structure
JEL Classification: G10, G14, G17
Suggested Citation: Suggested Citation