Factor Structure in Commodity Futures Return and Volatility

Peter Christoffersen; Asger Lunde; Kasper V. Olesen

doi:10.1017/S0022109018000765

Factor Structure in Commodity Futures Return and Volatility

Peter Christoffersen, Asger Lunde, Kasper V. Olesen

Department of Finance

Research output: Contribution to journal › Journal article › Research › peer-review

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 zero. While commodity markets appear segmented from the equity market when considering only returns, commodity volatility indicates a nontrivial degree of market integration.

Original language	English
Journal	Journal of Financial and Quantitative Analysis
Volume	54
Issue number	3
Pages (from-to)	1083-1115
Number of pages	33
ISSN	0022-1090
DOIs	https://doi.org/10.1017/S0022109018000765
Publication status	Published - Jun 2019

Bibliographical note

Published online: 28 August 2018

Access to Document

10.1017/S0022109018000765Licence: Unspecified

Cite this

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title = "Factor Structure in Commodity Futures Return and Volatility",

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 zero. While commodity markets appear segmented from the equity market when considering only returns, commodity volatility indicates a nontrivial degree of market integration.",

author = "Peter Christoffersen and Asger Lunde and Olesen, {Kasper V.}",

note = "Published online: 28 August 2018",

year = "2019",

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language = "English",

volume = "54",

pages = "1083--1115",

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AU - Lunde, Asger

AU - Olesen, Kasper V.

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PY - 2019/6

Y1 - 2019/6

N2 - 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 zero. While commodity markets appear segmented from the equity market when considering only returns, commodity volatility indicates a nontrivial degree of market integration.

AB - 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 zero. While commodity markets appear segmented from the equity market when considering only returns, commodity volatility indicates a nontrivial degree of market integration.

U2 - 10.1017/S0022109018000765

DO - 10.1017/S0022109018000765

M3 - Journal article

VL - 54

SP - 1083

EP - 1115

JO - Journal of Financial and Quantitative Analysis

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