Template-Type: ReDIF-Paper 1.0
Author-Name: Joseph Byrne
Author-Name-First: Joseph
Author-Name-Last: Byrne
Author-Email: joseph.byrne@strath.ac.uk
Author-Workplace-Name: Department of Economics, University of Strathclyde
Author-Name: Ryuta Sakemoto
Author-Name-First: Ryuta
Author-Name-Last: Sakemoto
Author-Workplace-Name: Okayama University
Title: Commodity Correlation Risk
Abstract: It is widely observed that primary commodity prices comove. A parallel literature
asserts that correlation risk matters for financial returns. Our novel study connects
these topics and presents evidence that commodity correlation risk is both
non-constant and important for returns. We reconsider therefore the relationship
between primary commodities, risk and macro fundamentals, utilising methods that
account for parameter uncertainty and stochastic volatility. We show that correlation
risk is positively related to commodity returns and the strongest impact of
risk upon return is more recent. We also demonstrate that commodity correlation
risk is strongly counter-cyclical, correlation risk predicts returns, our risk measure
is unrelated to other risk/uncertainty measures, and that correlation risk is linked
to commodity financialization.
Length:  pages
Creation-Date: 2022-11
Revision-Date: 
Publication-Status: 
File-URL: file:///I:/SBS-Fac/Economics/Course-Admin/Discussion%20Papers/2021-2025/2022/22-11%20Commodity%20Correlation%20Risk.pdf
File-Format: Application/pdf
Number: 2211
Classification-JEL: E3; F3; F4; G1
Keywords: Primary Commodity Returns; Commodity Correlation Risk; Commodity Comovement
Handle: RePEc:str:wpaper:2211