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Commodity Markets through the business cycle

Author

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  • Mathieu Gatumel

    (IREGE - Institut de Recherche en Gestion et en Economie - USMB [Université de Savoie] [Université de Chambéry] - Université Savoie Mont Blanc)

  • Florian Ielpo

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

We introduce a new meaure of risk appetite in financial markets, based on the cross sectional behavior of excess returns. Turning them into probabilities through a Markov Switching model, we define one global risk appetite measure as the cross-sectional average of the individual probabilities for each asset to be in a " risk appetite " regime. Given the probabilistic approach that comes naturally with this Markov Switching framework, we present various tests to gauge the interest of the risk appetite measure that is presented here. Using these tests we show that our index behaves well vs. various competitors, especially in out-of-sample results. We test for the information content of various assets and find that a core of asset allocation-related assets provide the best possible choice over various competing specifications.

Suggested Citation

  • Mathieu Gatumel & Florian Ielpo, 2014. "Commodity Markets through the business cycle," Post-Print hal-01302479, HAL.
    • Handle: RePEc:hal:journl:hal-01302479
    DOI: 10.2139/ssrn.2334180
    Note: View the original document on HAL open archive server: https://hal.science/hal-01302479
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    References listed on IDEAS

    as
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    Cited by:

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    3. Aneeta Elsa Simon & Manu K.S., 2023. "Does Sentiments Impact the Returns of Commodity Derivatives? An Evidence from Multi-commodity Exchange India," Vision, , vol. 27(1), pages 79-92, February.

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