Commodity Market Financialization, Herding and Signals:An Asymmetric GARCH R-Vine Copula Approach

40 Pages Posted: 29 Sep 2022

See all articles by Qin Xiao

Qin Xiao

University of Hull

Dalu Zhang

affiliation not provided to SSRN

Meilan Yan

Loughborough University


Institutional investors have significantly increased exposure to commodity futures especially oil futures after 2004 in a process called commodity market financialization, raising questions about the risk-sharing and price-discovery functions of the market. We propose an ARMA-GARCH R-vine copula approach that can flexibly model high-dimensional multivariate asymmetric tail dependence. Using S&P GSCI excess return indices, we discover three important shifts in the commodity futures market after 2004/8: an increased resemblance between the news impact curve ( NIC ) of stocks and those of many commodities; an increased bi-variate stock-commodity tail dependence; and an increased systemic multivariate tail-dependence across all commodities. We suggest that these changes were results of herding brought into the market by financial investors who had no physical interests and treated commodities simply as another asset class. The degrees of these changes were not universal, with crude oil most affected. These changes suggest increased information friction in and reduced risk-sharing of crude oil futures, which may eventually affect all commodity futures and have profound implications for commercial hedgers, financial investors, and regulators. Our study also suggests that NIC is an efficient and effective signal of herding and financialization.

Keywords: Commodity market financialization, herding, asymmetric tail dependence, risk-sharing, information friction

Suggested Citation

Xiao, Qin and Zhang, Dalu and Yan, Meilan, Commodity Market Financialization, Herding and Signals:An Asymmetric GARCH R-Vine Copula Approach. Available at SSRN:

Qin Xiao

University of Hull ( email )

Cottingham Road
Hull, Great Britain HU6 7RX
United Kingdom


Dalu Zhang

affiliation not provided to SSRN ( email )

No Address Available

Meilan Yan (Contact Author)

Loughborough University ( email )

Ashby Road
Nottingham NG1 4BU
Great Britain

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