Factor Structure in Commodity Futures Return and Volatility. (28th August 2018)

• Record Type: Journal Article
• Authors: Christoffersen, Peter; Lunde, Asger; Olesen, Kasper V.
• Is Part Of: Journal of financial and quantitative analysis. Volume 54:Number 3(2019)
• Page Start: 1083
• Page End: 1115
• Publication Date: 2018-08-28
• Subjects: Finance -- Periodicals; Investments -- Mathematics -- Periodicals; 332.05
• DOI: 10.1017/S0022109018000765
• Languages: English
• ISSNs: 0022-1090

Abstract

Abstract : We uncover stylized facts of commodity futures' price and volatility dynamics in the post-financialization period and find a factor structure in daily commodity volatility that is much stronger than the factor structure in returns. The common factor in commodity volatility relates to stock market volatility as well as to the business cycle. Model-free realized commodity betas with the stock market were high during 2008–2010 but have since returned to the pre-crisis level, close to 0. While commodity markets appear segmented from the equity market when considering only returns, commodity volatility indicates a nontrivial degree of market integration.