Department of Economics and Business Economics

Factor Structure in Commodity Futures Return and Volatility

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    Submitted manuscript, 3 MB, PDF-document

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.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages59
StatePublished - 15 Sep 2014
SeriesCREATES Research Papers
Number2014-31

    Research areas

  • Factor structure, Financial volatility, Beta, High-frequency data, Commodities, Financialization

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