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Liquidity commonality in commodities

Author

Listed:
  • Marshall, Ben R.
  • Nguyen, Nhut H.
  • Visaltanachoti, Nuttawat
Abstract
We examine liquidity commonality in commodity futures markets. Using data from 16 agricultural, energy, industrial metal, precious metal, and livestock commodities, we show there is a strong systematic liquidity factor in commodities. Liquidity commonality was present in 1997–2003 when commodity prices were relatively stable and during the recent boom. There is some support for both “supply-side” and “demand-side” explanations for this commonality. We find no evidence of a consistent link between stock and commodity liquidity in general. Energy commodities appear to provide a better hedge against equity market liquidity risk than the other commodity families.

Suggested Citation

  • Marshall, Ben R. & Nguyen, Nhut H. & Visaltanachoti, Nuttawat, 2013. "Liquidity commonality in commodities," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 11-20.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:1:p:11-20
    DOI: 10.1016/j.jbankfin.2012.08.013
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    References listed on IDEAS

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    More about this item

    Keywords

    Commodity; Liquidity; Commonality; Diversification; Hedging;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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