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Commodity price excess co-movement from a historical perspective: 1900–2010

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  • Fernandez, Viviana
Abstract
Pindyck and Rotemberg (1990)'s excess co-movement hypothesis states that commodity prices move together beyond what fundamentals can explain, reflecting possibly traders' herding or liquidity constraints. We test for price excess co-movement in 12 commodities — 11 non-energy ones and oil — spanning over a hundred years: 1900–2010. To this end, we approximate commodity demand/supply factors by their apparent consumption. We carry out several tests and find some evidence in favor of excess co-movement, but its nature appears to be time-dependent. In particular, we conclude that excess co-movement with oil is generally present, particularly in the industrial metal class. We also explore the interdependence between portfolio investment decisions and excess co-movement for three unrelated assets: cotton, copper, and petroleum. Based on Conditional Value-at-Risk (CVaR) optimization, we found some correlations between the two, when short sales are excluded, during 1971, 1999–2004, and 2008.

Suggested Citation

  • Fernandez, Viviana, 2015. "Commodity price excess co-movement from a historical perspective: 1900–2010," Energy Economics, Elsevier, vol. 49(C), pages 698-710.
    • Handle: RePEc:eee:eneeco:v:49:y:2015:i:c:p:698-710
    DOI: 10.1016/j.eneco.2015.04.003
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    Cited by:

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    3. Lucey, Brian M. & Vigne, Samuel A. & Ballester, Laura & Barbopoulos, Leonidas & Brzeszczynski, Janusz & Carchano, Oscar & Dimic, Nebojsa & Fernandez, Viviana & Gogolin, Fabian & González-Urteaga, Ana , 2018. "Future directions in international financial integration research - A crowdsourced perspective," International Review of Financial Analysis, Elsevier, vol. 55(C), pages 35-49.
    4. Fernandez, Viviana & Pastén-Henríquez, Boris & Tapia-Griñen, Pablo & Wagner, Rodrigo, 2023. "Commodity prices under the threat of operational disruptions: Labor strikes at copper mines," Journal of Commodity Markets, Elsevier, vol. 32(C).
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    6. Valdes, Rodrigo & Jara-Rojas, Roberto, 2020. "The impact of commodity price shocks among regional economies of a developing country," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 64(3), July.
    7. Wu, Fei & Zhao, Wan-Li & Ji, Qiang & Zhang, Dayong, 2020. "Dependency, centrality and dynamic networks for international commodity futures prices," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 118-132.
    8. Rodrigo Valdes & Roberto Jara‐Rojas, 2020. "The impact of commodity price shocks among regional economies of a developing country," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 64(3), pages 920-939, July.
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    More about this item

    Keywords

    Real commodity prices; Excess co-movement; Portfolio investment decisions;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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