Dynamic convergence of commodity futures: Not all types of commodities are alike. (June 2015)

• Record Type: Journal Article
• Authors: Sensoy, Ahmet; Hacihasanoglu, Erk; Nguyen, Duc Khuong
• Is Part Of: Resources policy. Volume 44(2015)
• Page Start: 150
• Page End: 160
• Publication Date: 2015-06
• Subjects: C58 -- G11 -- L61 -- Q02 -- Q14 -- Q40; Commodity futures -- Dynamic convergence -- Dynamic equicorrelation; Mines and mineral resources -- Periodicals; Ressources minérales -- Périodiques; Ressources naturelles -- Gestion -- Périodiques; Environnement -- Politique gouvernementale -- Périodiques; 333.8
• DOI: 10.1016/j.resourpol.2015.03.001
• Languages: English
• ISSNs: 0301-4207

Abstract

Abstract: We analyze the dynamic comovement of commodity futures returns within each category (energy, precious metals, industrial metals, and agriculture) from 1997 to 2013 under the effects of the financialization of commodity markets. Our findings from the dynamic equicorrelation GARCH model ofEngle and Kelly (2012) show evidence of convergence for precious and industrial metal commodity futures since mid-2000s. On the other hand, there is no sign of convergence across the agricultural commodity futures, with most of them moving in a unrelated manner. Finally, a relatively high level of convergence is found for energy commodity futures, except for natural gas futures which expectedly behave significantly different from the other energy commodity futures. As a whole, our results suggest some potential for diversification benefits within commodity-specific categories, but at the same time the predominance of physical supply/demand balance as the main driving force of the commodity futures price dynamics rather than global financial conditions. Abstract : Highlights: We analyze major commodity sectors by DECO and DCC methodologies. Energy sector has been a single asset class for a long time. Precious and industrial metals tend to converge to single asset classes. Agriculture sector is too distinct to be considered as a single asset class. Diversification possibilities exist across agricultural commodities.