The Dynamics of Commodity Return Comovements

57 Pages Posted: 8 May 2020

See all articles by Marcel Prokopczuk

Marcel Prokopczuk

Leibniz Universit├Ąt Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Chardin Wese Simen

University of Liverpool Management School

Robert Wichmann

ICMA Centre, University of Reading

Date Written: April 14, 2020

Abstract

This paper studies comovements in commodity futures markets. We compare factor models with respect to their fit of commodity return comovements. A model based on traded long-short portfolio returns outperforms a macroeconomic model, and explains 96% of the realised comovement. Dissecting the evidence, we find that comovements are driven by the variation of factor covariances as opposed to sensitivities. Intersectoral correlations are more affected than intrasectoral correlations. Volatility comovements only react following the global financial crisis. Our results cast doubt on the persistence of the effects of financialization and emphasize the importance of the dynamics of factor covariances.

Keywords: Commodity Markets, Comovement, Financialization, Factor Model

JEL Classification: G13, C38, F36, Q02

Suggested Citation

Prokopczuk, Marcel and Wese Simen, Chardin and Wichmann, Robert, The Dynamics of Commodity Return Comovements (April 14, 2020). Available at SSRN: https://ssrn.com/abstract=3575460 or http://dx.doi.org/10.2139/ssrn.3575460

Marcel Prokopczuk (Contact Author)

Leibniz Universit├Ąt 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

Chardin Wese Simen

University of Liverpool Management School ( email )

Management School
University of Liverpool
Liverpool, L69 7ZH
United Kingdom

Robert Wichmann

ICMA Centre, University of Reading ( email )

ICMA Centre, Whiteknights Campus
Shinfield Road
Reading, Berkshire RG6 6BA
United Kingdom
+44 118 378 8239 (Phone)

HOME PAGE: http://www.icmacentre.ac.uk

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