The Dynamics of Commodity Return Comovements

Journal of Futures Markets, Forthcoming (2021)

58 Pages Posted: 8 May 2020 Last revised: 30 Apr 2021

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

We compare factor models with respect to their ability to explain commodity futures return
comovements. A simple one-factor model based on the rst principal component extracted
from a panel of commodity returns outperforms a macroeconomic model, and explains most
of the realized comovements. We nd that intersectoral correlations display more time
variations than intrasectoral correlations. Dissecting the evidence further, we nd that co-
movements are driven by the variation of the factor as opposed to exposure to it. Our results
cast doubt on the persistence of the e ects of nancialization and emphasize the importance
of the dynamics of the factor variance.

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). Journal of Futures Markets, Forthcoming (2021), 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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