Title: On what drives commodity returns: Market, sector or idiosyncratic factors
Authors: Andrew Vivian - Loughborough University (United Kingdom) [presenting]
Jun Ma - Northeastern University (United States)
Mark Wohar - University of Nebraska at Omaha (United Kingdom)
Abstract: The relationship between 43 commodity returns is examined by using a dynamic factor model with time varying stochastic volatility. The dynamic factor model decomposes each commodity return into a market, sector-specific and commodity-specific component. It enables the variance attributed to each component to be estimated at each point in time. We find the return variation explained by the common factor has increased substantially for the recent period and is statistically significant for the vast majority of commodities since 2004 (at each point in time). This phenomenon is strongest for non-perishable products. We link the amount of variation explained by the common factor to economic variables.