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Commodity Market Risk: Examining Price Co-Movements in the Pakistan Mercantile Exchange

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  • Falik Shear

    (Faisalabad Business School, National Textile University, Faisalabad 37610, Pakistan)

  • Muhammad Bilal

    (Faisalabad Business School, National Textile University, Faisalabad 37610, Pakistan)

  • Badar Nadeem Ashraf

    (LSBU Business School, London South Bank University, London SE1 0AN, UK)

  • Nasir Ali

    (Faisalabad Business School, National Textile University, Faisalabad 37610, Pakistan)

Abstract

Commodity price co-movements significantly impact investment decisions. High correlations constrain portfolio diversification and limit risk mitigation potential. While international markets often exhibit strong price linkages, understanding national-level dynamics is crucial for effective portfolio optimization. In this paper, we examine the commodity price co-movements within three key sectors—energy, metals, and agriculture—in the specific context of Pakistan. Utilizing data from 13 January 2013 to 20 August 2020 and employing an autoregressive distributed lag (ARDL) model, we reveal a surprising finding: co-movement among these sectors is weak and primarily short-term. This challenges the conventional assumption of tight coupling in national markets and offers exciting implications for investors. Our analysis suggests that Pakistani commodities hold significant diversification potential, opening promising avenues for risk-reduction strategies within the national market.

Suggested Citation

  • Falik Shear & Muhammad Bilal & Badar Nadeem Ashraf & Nasir Ali, 2024. "Commodity Market Risk: Examining Price Co-Movements in the Pakistan Mercantile Exchange," Risks, MDPI, vol. 12(6), pages 1-15, May.
    • Handle: RePEc:gam:jrisks:v:12:y:2024:i:6:p:86-:d:1399301
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    References listed on IDEAS

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    5. Rehman, Mobeen Ur & Vo, Xuan Vinh, 2021. "Energy commodities, precious metals and industrial metal markets: A nexus across different investment horizons and market conditions," Resources Policy, Elsevier, vol. 70(C).
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