Asymmetric Volatility in Commodity Markets

Yu-Fu Chen; Xiaoyi Mu

Asymmetric Volatility in Commodity Markets

Research output: Contribution to conference › Paper › peer-review

Abstract

The paper studies the return-volatility relationship in a range of commodities. We develop a commodity price model and show that the volatility of price changes can be positively or negatively related to demand shocks. An “inverse leverage effect” – the volatility is higher following positive price shocks – is found in more than half of the daily spot prices. The effect is weaker in 3-month futures market and monthly historical volatility measures. Only crude oil exhibits a “leverage effect” – a higher volatility follows a negative shock, and the reason is explored in the context of its special market structure.

Original language	English
Publication status	Published - 29 May 2019
Event	42nd IAEE International Conference: Local Energy, Global Markets - Montreal, Canada Duration: 29 May 2019 → 1 Jun 2019 Conference number: 42 https://iaee2019.org/

Conference

Conference	42nd IAEE International Conference
Country/Territory	Canada
City	Montreal
Period	29/05/19 → 1/06/19
Internet address	https://iaee2019.org/

Keywords

asymmetric volatility
commodity markets
invetory effects
OPEC
crude oil
GARCH

ASJC Scopus subject areas

Economics, Econometrics and Finance (miscellaneous)
General Energy

Access to Document

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3524136

Cite this

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title = "Asymmetric Volatility in Commodity Markets",

abstract = "The paper studies the return-volatility relationship in a range of commodities. We develop a commodity price model and show that the volatility of price changes can be positively or negatively related to demand shocks. An “inverse leverage effect” – the volatility is higher following positive price shocks – is found in more than half of the daily spot prices. The effect is weaker in 3-month futures market and monthly historical volatility measures. Only crude oil exhibits a “leverage effect” – a higher volatility follows a negative shock, and the reason is explored in the context of its special market structure. ",

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AU - Chen, Yu-Fu

AU - Mu, Xiaoyi

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PY - 2019/5/29

Y1 - 2019/5/29

N2 - The paper studies the return-volatility relationship in a range of commodities. We develop a commodity price model and show that the volatility of price changes can be positively or negatively related to demand shocks. An “inverse leverage effect” – the volatility is higher following positive price shocks – is found in more than half of the daily spot prices. The effect is weaker in 3-month futures market and monthly historical volatility measures. Only crude oil exhibits a “leverage effect” – a higher volatility follows a negative shock, and the reason is explored in the context of its special market structure.

AB - The paper studies the return-volatility relationship in a range of commodities. We develop a commodity price model and show that the volatility of price changes can be positively or negatively related to demand shocks. An “inverse leverage effect” – the volatility is higher following positive price shocks – is found in more than half of the daily spot prices. The effect is weaker in 3-month futures market and monthly historical volatility measures. Only crude oil exhibits a “leverage effect” – a higher volatility follows a negative shock, and the reason is explored in the context of its special market structure.

KW - asymmetric volatility

KW - commodity markets

KW - invetory effects

KW - OPEC

KW - crude oil

KW - GARCH

UR - https://iaee2019.org/

M3 - Paper

T2 - 42nd IAEE International Conference

Y2 - 29 May 2019 through 1 June 2019

ER -

Asymmetric Volatility in Commodity Markets

Abstract

Conference

Keywords

ASJC Scopus subject areas

Access to Document

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