Commodity Market Heterogeneity and Cross-Market Integration

  • Michael Kunkler Relative Markets Limited

Abstract

We evaluate the recent levels of heterogeneity and cross-market integration for fluctuations in commodity futures returns for a post-financial-crisis data sample. We find that a single commodity-market risk factor explains 30.6% of the total variation in commodity futures returns. The commodity-market risk factor is significantly correlated with the dominant market-wide risk factors from other asset classes: +66.7% with a market risk factor for the US equity market; -74.2% with a US dollar risk factor for the FX market; and -27.8% with an interest-rate level risk factor for the US interest rate market. Thus, a part of the systematic variation in the commodity market is integrated with other asset classes.

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Published
2017-12-06
How to Cite
KunklerM. (2017). Commodity Market Heterogeneity and Cross-Market Integration. Applied Finance Letters, 6(01), 16-27. https://doi.org/10.24135/afl.v6i01.61
Section
Articles submitted to regular issue