Asymmetric Volatility in Commodity Markets

This paper explores the relationship between return volatility and the level of returns in commodity markets

This paper explores the relationship between return volatility and the level of returns in commodity markets. Under a simple demand and supply framework, we demonstrate that the asymmetric volatility response to positive and negative shocks arise from the convexity in supply curves. We empirically examine the behaviour of volatility using both time-series conditional volatility models and realized volatility measures for a range of commodities including agricultural products, energy, industrial metals and precious metals. An “inverse leverage effect” is found in about half of the daily spot price series. Consistent with theoretical predictions, commodities exhibiting significant “inverse leverage effects” tend to have more convex supply curves.

Speaker

Xiaoyi Mu, University of Dundee

Hosted by

Dr Nikos Vlassis

Venue

Room S86, Edward Wright Building