Home

>

Comovement and the Financialization of Commodities

Commodity markets have experienced a surge in participation by financial investors over the past decade. This notable uptick highlighted the potential effect of financialization as one of the causes of increased comovement of commodities returns. Building on the theory of comovement proposed by Barberis et al. (2005), this paper investigates drivers of the observed increase in comovement prices of commodity futures in the United States and provides new empirical evidences. This empirical analysis allows us to distinguish between two views of return comovement: the traditional view, in which return comovement is explained by comovements in news about fundamentals value, and the alternative view, in which excess comovement is attributed to traders’ sentiment. We examine differences in the dependence structure between index and off-index commodities, and three major commodities indexes. Non-energy commodities present in the index exhibit an increase in comovement whereas those commodities off the index do not. These results are supported by the analysis of high-frequency returns dynamics by means of the so called realised beta. We therefore provide new evidence supporting the friction or sentiment based view of commodity comovement. We interpret this to be additional evidence of financialization as the driver of the observed increase in commodity return comovement.

SHARE THIS Policy Brief / Working Paper PUBLICATION:

Related South Africa’s Cities and Growth Spatial Challenges and Policy Interventions Content

Request for Proposals: The role of cities as drivers of growth and employment
Background Urbanization in South Africa is expected to reach 80% by...
Call for Work
South Africa’s future will be decided in our cities
Discussion Document 14 South Africa’s cities face multiple, overlap...
Dieter von Fintel, Justin Visagie, Ivan Turok, Takwanisa Machemedze, Claus Rabe, Sebastian Galiani, Edward Glaeser
Discussion Document
Monitoring South Africa’s metropolitan economies: A survey of the data landscape
Discussion Document 13 Disparities in data across different metropo...
Dieter von Fintel
Discussion Document
Cities, productivity and Jobs in SA: Problems and potential
Discussion Document 12 Cities contribute to national prosperity bec...
Ivan Turok, Justin Visagie
Discussion Document
Place-based economic policies: international lessons for South Africa
Discussion Document 11 Place-based policies are designed to support...
Harris Selod, Claus Rabe
Discussion Document
What luminosity data can and cannot reveal about South Africa’s urban economies
Discussion Document 10 As novel types of data are becoming availabl...
Takwanisa Machemedze
Discussion Document
Crime: A policy-oriented survey
Discussion Document 9 South Africa has a reputation for having high...
Sebastian Galiani
Discussion Document
Virtual CDE Workshop on SA Cities and Growth
Urban economics has provided powerful insights into how the charact...
Workshop