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Comovement in the commodity futures markets: An analysis of the energy, grains, and livestock sectors

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  • Adhikari, Ramesh
  • Putnam, Kyle J.

Abstract

We examine the excess comovement of commodity futures returns. We contend that commodities categorized in the same sector possess fundamental price linkages; thus, measures of excess comovement "within-sectors" are much higher relative to "across-sector" measures. Consistent with this premise we find that all copula model dependence measures used in the study capture this feature of the commodity markets. Further, we test the relevance of two new "cross-market" factors related to changes in inventory and open interest as determinants of commodity futures returns. We find a strong positive relationship between changes in cross-market open interest and futures returns to the energy and livestock markets. In contrast, the impact of changes in cross-market inventory on futures returns to the energy and grains sectors is very minor.

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  • Adhikari, Ramesh & Putnam, Kyle J., 2020. "Comovement in the commodity futures markets: An analysis of the energy, grains, and livestock sectors," Journal of Commodity Markets, Elsevier, vol. 18(C).
    • Handle: RePEc:eee:jocoma:v:18:y:2020:i:c:s2405851318300680
    DOI: 10.1016/j.jcomm.2019.04.002
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    More about this item

    Keywords

    Commodities; Commodity futures; Comovement; Dependence;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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