Heavy-Tailed Distribution of Commodity Prices and the Effectiveness of VaR Models

Jullavut Kittiakarasakun

A chapter in International Financial Markets, 2014, vol. 13, pp 125-137 from Emerald Group Publishing Limited

Abstract: Previous research suggests that monthly commodity futures returns are like equity returns and recommend long-only portfolio positions. A follow-up question is whether the distributions of daily returns on commodity futures are fat-tailed, just like equity returns. This question has important implication for commodity futures traders because futures trade positions are marked to the market daily. The Extreme Value Theory (EVT) is used to test whether the distributions of the commodity futures returns are fat-tailed with finite variance. The results suggest that not all commodity futures returns have a fat-tail distribution and the tails of the distributions of commodity futures returns generally are smaller than the tails of the distribution of equity returns.

Keywords: Return distribution; commodity futures; Extreme Value Theory (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eme:fegzzz:s1574-8715(2013)0000013012

DOI: 10.1108/S1574-8715(2013)0000013012

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