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Time‐varying dynamics of expected shortfall in commodity futures markets

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  • Julia S. Mehlitz
  • Benjamin R. Auer

Abstract

Motivated by the growing interest of investors in commodities and by advances in risk measurement, we present a full‐scale analysis of expected shortfall (ES) in commodity futures markets. Besides illustrating the dynamics of historic ES, we evaluate whether popular estimators are suitable for forecasting future ES. By implementing a new backtest, we find that the performance of estimators hinges on market stability. Estimators tend to fail when markets are in turmoil and accurate forecasts are urgently needed. Even though a kernel method performs best on average, our results advise against the use of established estimators for risk (and margin) prediction.

Suggested Citation

  • Julia S. Mehlitz & Benjamin R. Auer, 2021. "Time‐varying dynamics of expected shortfall in commodity futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(6), pages 895-925, June.
    • Handle: RePEc:wly:jfutmk:v:41:y:2021:i:6:p:895-925
    DOI: 10.1002/fut.22196
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