Commodity price excess co-movement from a historical perspective: 1900–2010

Viviana Fernandez

Energy Economics, 2015, vol. 49, issue C, 698-710

Abstract: Pindyck and Rotemberg (1990)'s excess co-movement hypothesis states that commodity prices move together beyond what fundamentals can explain, reflecting possibly traders' herding or liquidity constraints. We test for price excess co-movement in 12 commodities — 11 non-energy ones and oil — spanning over a hundred years: 1900–2010. To this end, we approximate commodity demand/supply factors by their apparent consumption. We carry out several tests and find some evidence in favor of excess co-movement, but its nature appears to be time-dependent. In particular, we conclude that excess co-movement with oil is generally present, particularly in the industrial metal class. We also explore the interdependence between portfolio investment decisions and excess co-movement for three unrelated assets: cotton, copper, and petroleum. Based on Conditional Value-at-Risk (CVaR) optimization, we found some correlations between the two, when short sales are excluded, during 1971, 1999–2004, and 2008.

Keywords: Real commodity prices; Excess co-movement; Portfolio investment decisions (search for similar items in EconPapers)
JEL-codes: C22 E31 O13 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:49:y:2015:i:c:p:698-710

DOI: 10.1016/j.eneco.2015.04.003

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