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Convenience yield, realised volatility and jumps: Evidence from non-ferrous metals

Akihiro Omura, Bin Li, Richard Chung and Neda Todorova

Economic Modelling, 2018, vol. 70, issue C, 496-510

Abstract: Under the notion of convenience yield, a price of spot contract inherits relative implied value, against futures/forward contracts, for being readily available. This study examines the presence of a short-term lead-lag relationship between the volatility of futures price changes (including its decomposed components) and the convenience yield of major base metals, namely, aluminium, copper, nickel and zinc. Since an increase in the level of volatility may stimulate the demand for inventory, this study aims to provide alternative measures to understand the dynamic behaviour of convenience yield. Taken together, the results mostly support the presence of statistically significant relationships between the convenience yield and the realised volatility, which can be used for constructing effective inventory and investment strategies.

Keywords: Commodity markets; Options; Realised volatility; Futures jump; Convenience yield; The theory of storage (search for similar items in EconPapers)
JEL-codes: G15 Q02 Q31 D51 D81 E20 (search for similar items in EconPapers)
Date: 2018
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