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J. Risk Financial Manag. 2018, 11(4), 72; https://doi.org/10.3390/jrfm11040072

Volatility Spillovers Arising from the Financialization of Commodities

Department of Economics, Lazaridis School of Business and Economics, Wilfrid Laurier University, Waterloo, ON N2L 3C5, Canada
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Received: 7 September 2018 / Revised: 17 October 2018 / Accepted: 25 October 2018 / Published: 27 October 2018
(This article belongs to the Special Issue Stock Market Volatility Modelling and Forecasting)
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Abstract

This paper examines whether the proliferation of new index products, such as commodity-tracking exchange-traded funds (ETFs), amplified the volatility transmission channel introduced by financialization. This paper focuses on the volatility spillover effects among crude oil, metals, agriculture, and non-energy commodity markets. The results show financialization has an impact on the volatility of commodity prices, predominantly for non-energy commodities. However, the impact on volatility is not symmetric across all commodities. The analysis of index investment and investors’ positions in futures markets shows that, when a relationship exists, it is generally negatively correlated with the realized volatility of non-energy commodities. Using realized volatility in the difference-in-difference model provides estimates that are inconsistent with other findings that non-energy commodities, traded as a part of indices, have experienced higher volatility. The results are similar to the index investment and futures market analysis, where increased participation by investors through new investment products has put download pressure on realized volatility. View Full-Text
Keywords: financialization; realized volatility; commodity markets; non-energy commodities; exchange-traded fund; speculative positions financialization; realized volatility; commodity markets; non-energy commodities; exchange-traded fund; speculative positions
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Chan, W.H.; Shelton, B.; Wu, Y.W. Volatility Spillovers Arising from the Financialization of Commodities. J. Risk Financial Manag. 2018, 11, 72.

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