Details
| Original language | English |
|---|---|
| Pages (from-to) | 2651-2663 |
| Number of pages | 13 |
| Journal | Economic modelling |
| Volume | 29 |
| Issue number | 6 |
| Publication status | Published - 1 Nov 2012 |
| Externally published | Yes |
Abstract
We employ a large dataset of physical inventory data on 21 different commodities for the period 1993-2011 to empirically analyze the behavior of commodity prices and their volatility as predicted by the theory of storage. We examine two main issues. First, we analyze the relationship between inventory and the shape of the forward curve. Low (high) inventory is associated with forward curves in backwardation (contango), as the theory of storage predicts. Second, we show that price volatility is a decreasing function of inventory for the majority of commodities in our sample. This effect is more pronounced in backwardated markets. Our findings are robust with respect to alternative inventory measures and over the recent commodity price boom.
Keywords
- Commodity price volatility, Convenience yield, Forward curves, Inventory, Theory of storage
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
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In: Economic modelling, Vol. 29, No. 6, 01.11.2012, p. 2651-2663.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Futures basis, inventory and commodity price volatility
T2 - An empirical analysis
AU - Symeonidis, Lazaros
AU - Prokopczuk, Marcel
AU - Brooks, Chris
AU - Lazar, Emese
PY - 2012/11/1
Y1 - 2012/11/1
N2 - We employ a large dataset of physical inventory data on 21 different commodities for the period 1993-2011 to empirically analyze the behavior of commodity prices and their volatility as predicted by the theory of storage. We examine two main issues. First, we analyze the relationship between inventory and the shape of the forward curve. Low (high) inventory is associated with forward curves in backwardation (contango), as the theory of storage predicts. Second, we show that price volatility is a decreasing function of inventory for the majority of commodities in our sample. This effect is more pronounced in backwardated markets. Our findings are robust with respect to alternative inventory measures and over the recent commodity price boom.
AB - We employ a large dataset of physical inventory data on 21 different commodities for the period 1993-2011 to empirically analyze the behavior of commodity prices and their volatility as predicted by the theory of storage. We examine two main issues. First, we analyze the relationship between inventory and the shape of the forward curve. Low (high) inventory is associated with forward curves in backwardation (contango), as the theory of storage predicts. Second, we show that price volatility is a decreasing function of inventory for the majority of commodities in our sample. This effect is more pronounced in backwardated markets. Our findings are robust with respect to alternative inventory measures and over the recent commodity price boom.
KW - Commodity price volatility
KW - Convenience yield
KW - Forward curves
KW - Inventory
KW - Theory of storage
UR - http://www.scopus.com/inward/record.url?scp=84866488086&partnerID=8YFLogxK
U2 - 10.1016/j.econmod.2012.07.016
DO - 10.1016/j.econmod.2012.07.016
M3 - Article
AN - SCOPUS:84866488086
VL - 29
SP - 2651
EP - 2663
JO - Economic modelling
JF - Economic modelling
SN - 0264-9993
IS - 6
ER -