Commodities' common factor: An empirical assessment of the markets' drivers

Johannes Lübbers and Peter Posch

Journal of Commodity Markets, 2016, vol. 4, issue 1, 28-40

Abstract: Using a generalized dynamic factor model, we identify a latent common factor in a broad sample of thirty-one commodity futures’ returns between 1996 and 2015. An investigation of sub-periods reveals an increasing correlation between the common factor and changes in gold and oil prices during the financial crisis. We also consider whether the common factors of commodity subsectors give an advantage to the pricing of commodity futures’ returns. In the cross-section of individual futures’ returns we suggest that two- or three-factor models that include energy's or agriculture's common factors can explain commodity returns. Thus, our results indicate an increasing homogeneity of the commodity markets in recent years.

Keywords: Commodity-specific common factor; Generalized dynamic factor models; Co-movement (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:4:y:2016:i:1:p:28-40

DOI: 10.1016/j.jcomm.2016.10.002

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