Asymmetric Volatility in Commodity Markets
46 Pages Posted: 24 Jan 2020
Date Written: January 23, 2020
The paper studies the return-volatility relationship in a range of commodities. We develop a commodity price model and show that the volatility of price changes can be positively or negatively related to demand shocks. An “inverse leverage effect” – the volatility is higher following positive price shocks – is found in more than half of the daily spot prices. The effect is weaker in 3-month futures market and monthly historical volatility measures. Only crude oil exhibits a “leverage effect” – a higher volatility follows a negative shock, and the reason is explored in the context of its special market structure.
Keywords: asymmetric volatility; commodity; inventory effect
JEL Classification: G13, Q02, Q4
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