The economic drivers of commodity market volatility. (November 2019)

• Record Type: Journal Article
• Authors: Prokopczuk, Marcel; Stancu, Andrei; Symeonidis, Lazaros
• Is Part Of: Journal of international money and finance. Volume 98(2019)
• Publication Date: 2019-11
• Subjects: G12 -- G13; Commodities -- Economic uncertainty -- Volatility -- Financialization -- Crisis; International finance -- Periodicals; Foreign exchange -- Periodicals; Finances internationales -- Périodiques; Change -- Périodiques; Foreign exchange; International finance; Periodicals; 332.04205
• DOI: 10.1016/j.jimonfin.2019.102063
• Languages: English
• ISSNs: 0261-5606

Abstract

Highlights: We analyze the link between economic uncertainty and commodity market volatility. Commodity market volatility co-moves strongly with economic uncertainty, especially during recession periods. We identify economic risk factors that have predictive ability for commodity market volatility. The documented predictability is stronger after the financialization of commodity markets. The predictability peaks around the 2008–2009 global financial crisis. Abstract: We analyze the relationship between economic uncertainty and commodity market volatility. We find that commodity market volatility comoves strongly with economic and financial uncertainty, especially during recessions. Variables associated with credit risk, financial market stress, and fluctuations in business conditions bear significant predictive ability for commodity market volatility. The documented predictability is mainly observed in the period after the financialization of commodity markets (i.e. post–2004) and it peaks during the 2008–2009 global financial crisis.