Commodities Inventory Effect

authors

  • Carpantier Jean-François
  • Dufays Arnaud

keywords

  • Asymmetries
  • Commodities
  • Inventory
  • Spline GARCH
  • VaR

document type

REPORT

abstract

Does commodity price volatility increase when inventories are low? We are the first ones to document this relationship. To that aim, we estimate asym- metric volatility models for a large set of commodities over 1994-2011. Since inventories are hard to measure, especially for high frequency data, we use positive return shocks as a new original proxy for inventories and find that asymmetric GARCH models reveal a significant inventory effect for many commodities. The results look robust. They hold if we allow the uncondi- tional variance to vary over time and if we relax the parametric form.

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