Futures Trading and the Excess Co-movement of Commodity Prices
Le Pen, Yannick; Sévi, Benoît (2018), Futures Trading and the Excess Co-movement of Commodity Prices, Review of Finance, 22, 1, p. 381-418. 10.1093/rof/rfx039
TypeArticle accepté pour publication ou publié
Journal nameReview of Finance
Oxford University Press
MetadataShow full item record
Author(s)Le Pen, Yannick
Groupement de Recherche en Économie Quantitative d'Aix-Marseille [GREQAM]
Abstract (EN)We empirically reinvestigate the issue of the excess co-movement of commodity prices initially raised in Pindyck and Rotemberg (1990). Excess co-movement appears when commodity prices remain correlated even after adjusting for the impact of fundamentals. We use recent developments in large approximate factor models to consider a richer information set and adequately model these fundamentals. We consider a set of eight unrelated commodities along with 184 real and nominal macroeconomic variables, from developed and emerging economies, from which nine factors are extracted over the 1993–2013 period. Our estimates provide evidenceof time-varying excess co-movement which is particularly high after 2007. Wefurther show that speculative intensity is a driver of the estimated excess comovement, as speculative trading is both correlated across the commodity futures markets and correlated with the futures prices. Our results can be taken as direct evidence of the significant impact of financialization on commodity-price crossmoments.
Subjects / KeywordsCommodity excess co-movement hypothesis; Factor model; Heteroscedasticity-corrected; correlation; Commodity index; Futures trading
JELC22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
C32 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
G15 - International Financial Markets
E17 - Forecasting and Simulation: Models and Applications
Showing items related by title and author.
The EU emissions trading scheme : The effects of industrial production and CO2 emissions on carbon prices Alberola, Emilie; Chevallier, Julien; Chèze, Benoît (2008) Article accepté pour publication ou publié