Factor Structure in Commodity Futures Return and Volatility

Peter Christoffersen, Asger Lunde () and Kasper V. Olesen ()
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Asger Lunde: Aarhus University and CREATES, Postal: Department of Economics and Business, Fuglesangs Allé 4, 8210 Aarhus V, Denmark
Kasper V. Olesen: Aarhus University and CREATES, Postal: Department of Economics and Business, Fuglesangs Allé 4, 8210 Aarhus V, Denmark

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: Using data on more than 750 million futures trades during 2004-2013, we analyze eight stylized facts of commodity price and volatility dynamics in the post financialization period. We pay particular attention to the factor structure in returns and volatility and to commodity market integration with the equity market. We find evidence of a factor structure in daily commodity futures returns. However, the factor structure in daily commodity futures volatility is even stronger than in returns. When computing model-free realized commodity betas with the stock market we find that they were high during 2008-2010 but have since returned to the pre-crisis level close to zero. The common factor in commodity volatility is nevertheless clearly related to stock market volatility. We conclude that, while commodity markets appear to again be segmented from the equity market when only returns are considered, commodity volatility indicates a nontrivial degree of market integration.

Keywords: Factor structure; financial volatility; beta; high-frequency data; commodities; financialization (search for similar items in EconPapers)
JEL-codes: G13 Q02 (search for similar items in EconPapers)
Pages: 57
Date: 2014-09-08
New Economics Papers: this item is included in nep-agr and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Factor Structure in Commodity Futures Return and Volatility (2019)
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