The Dynamics of Commodity Prices

Chris Brooks and Marcel Prokopczuk ()

ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading

Abstract: In this paper we study the stochastic behavior of the prices and volatilities of a sample of six of the most important commodity markets and we compare these properties to those of the equity market. We observe a substantial degree of heterogeneity in the behavior of the series. Our findings show that it is inappropriate to treat different kinds of commodities as a single asset class as is frequently the case in the academic literature and in the industry. We demonstrate that commodities can be a useful diversifier of equity volatility as well as equity returns. Risk measurement and options pricing and hedging applications exemplify the economic impacts of the differences across commodities and between model specifications.

Date: 2011-05
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Journal Article: The dynamics of commodity prices (2013)
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