Commodity returns co-movements: Fundamentals or "style" effect? - Archive ouverte HAL Accéder directement au contenu
Pré-Publication, Document De Travail Année : 2014

Commodity returns co-movements: Fundamentals or "style" effect?

Résumé

This paper investigates dynamic correlations both across commodities and between commodities and traditional assets, such as equities and government bonds, using the Regime Switching Dynamic Correlation (RSDC) model. In particular, this paper assesses the dynamics of 32 daily commodity futures returns, spanning a period from May 28, 2003, to June 04, 2014, in the light of economic and financial events before and after the mid-2007 financial crisis. There are three major findings. First, prior to the financial crisis, we detect stronger correlation among the wide range of commodities used in the analysis, indicating that the financialization process started impacting commodity price movements from mid-2005. Between commodities taken as an asset class and traditional asset classes our results generally show very weak commodity-equity and commodity-bond correlations prior to the Lehman Brother collapse. This can be explained by the “style ”effect theory that correlations between different asset classes in a portfolio weaken. Second, during the financial crisis, correlations both across commodities and between commodities and equities increase dramatically, with a regime change which coincides exactly with the demise of Lehman Brothers on September 15, 2008. This suggests that a strong commodity-equity integration was temporarily masked by the “style ”effect. However, commodity-bond correlations switch to a strongly negative regime, showing that government bonds were considered as refuge securities. Third and most importantly, the new and original finding here is the temporary nature of the financial crisis effect identified, as correlations both across commodities and between commodities and traditional assets revert to pre-crisis level from April 2013. This highlights the impact of the financial-based factors on commodity price movements.
Fichier principal
Vignette du fichier
LEMNA_WP_2014-30.pdf (6.34 Mo) Télécharger le fichier
Origine : Fichiers produits par l'(les) auteur(s)
Loading...

Dates et versions

hal-01093631 , version 1 (10-12-2014)

Identifiants

  • HAL Id : hal-01093631 , version 1

Citer

Philippe Charlot, Olivier Darné, Zakaria Moussa. Commodity returns co-movements: Fundamentals or "style" effect?. 2014. ⟨hal-01093631⟩

Relations

284 Consultations
615 Téléchargements

Partager

Gmail Facebook X LinkedIn More