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Comovement in the commodity futures markets: An analysis of the energy, grains, and livestock sectors

Ramesh Adhikari and Kyle J. Putnam

Journal of Commodity Markets, 2020, vol. 18, issue C

Abstract: We examine the excess comovement of commodity futures returns. We contend that commodities categorized in the same sector possess fundamental price linkages; thus, measures of excess comovement "within-sectors" are much higher relative to "across-sector" measures. Consistent with this premise we find that all copula model dependence measures used in the study capture this feature of the commodity markets. Further, we test the relevance of two new "cross-market" factors related to changes in inventory and open interest as determinants of commodity futures returns. We find a strong positive relationship between changes in cross-market open interest and futures returns to the energy and livestock markets. In contrast, the impact of changes in cross-market inventory on futures returns to the energy and grains sectors is very minor.

Keywords: Commodities; Commodity futures; Comovement; Dependence (search for similar items in EconPapers)
JEL-codes: G11 G12 G13 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jcomm.2019.04.002

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Journal of Commodity Markets is currently edited by Marcel Prokopczuk, Betty Simkins and Sjur Westgaard

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