Skip to main content

Research Repository

Advanced Search

The effects of commodity financialization on commodity market volatility

Ding, Shusheng; Cui, Tianxiang; Zheng, Dandan; Du, Min

Authors

Shusheng Ding

Tianxiang Cui

Dandan Zheng



Abstract

The last two decades have witnessed a massive capital inflow into commodity markets, provoking the commodity financialization episode, which turned into a major stimulus for emerging studies of commodity market prices as financialization can impact on commodity prices. In this paper, we analyze the price movements in commodity markets like oil market from commodity financialization perspective. Following this vein, we demonstrate that commodity financialization has a vast impact on commodity markets' volatility as well as dynamic correlations with stock market. We employ the DCC-GARCH model to demonstrate that commodity financialization increase the commodity market fluctuations and more importantly create a closer relation between commodity market and stock market. We further reveal that there is an asymmetrical capital attracting mechanism across different commodity markets and thus different markets may exhibit different weight in affecting conditional volatilities and dynamic conditional correlations with stock market after commodity financialization. We show that gold, sugar and wheat markets play dominate roles in affecting market volatilities as well as correlations with stock market, where their liquidities have spillover effects on other commodity markets’ conditional volatilities and dynamic conditional correlations with the stock market. Our sub-sample results illustrate considerably liquidity impacts on market volatility and correlation with stock market after financialization, for gold, sugar and wheat markets, which largely differentiate from the pre-financialization period.

Journal Article Type Article
Acceptance Date Jun 28, 2021
Online Publication Date Jul 8, 2021
Publication Date 2021-10
Deposit Date Dec 10, 2021
Journal Resources Policy
Print ISSN 0301-4207
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 73
Article Number 102220
DOI https://doi.org/10.1016/j.resourpol.2021.102220
Keywords Commodity futures markets, Financialization of commodities, Conditional volatility, Dynamic conditional correlation
Public URL http://researchrepository.napier.ac.uk/Output/2828564