Futures basis, inventory and commodity price volatility: An empirical analysis

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Symeonidis, Lazaros, Prokopczuk, Marcel, Brooks, Chris and Lazar, Emese (2012) Futures basis, inventory and commodity price volatility: An empirical analysis. Economic Modelling, 29 (6). pp. 2651-2663. ISSN 0264-9993

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Abstract

We employ a large dataset of physical inventory data on 21 different commodities for the period 1993-2011 to empirically analyze the behavior of commodity prices and their volatility as predicted by the theory of storage. We examine two main issues. First, we analyze the relationship between inventory and the shape of the forward curve. Low (high) inventory is associated with forward curves in backwardation (contango), as the theory of storage predicts. Second, we show that price volatility is a decreasing function of inventory for the majority of commodities in our sample. This effect is more pronounced in backwardated markets. Our findings are robust with respect to alternative inventory measures and over the recent commodity price boom.

Item Type:	Article
Faculty \ School:	Faculty of Social Sciences > Norwich Business School
UEA Research Groups:	Faculty of Social Sciences > Research Groups > Finance Group Faculty of Social Sciences > Research Groups > Accounting, Finance and Governance (former - to 2017)
Related URLs:	http://www.scopus.com/inward/record.url?...
Depositing User:	Pure Connector
Date Deposited:	30 Oct 2014 14:34
Last Modified:	13 Jun 2023 08:26
URI:	https://ueaeprints.uea.ac.uk/id/eprint/50563
DOI:	10.1016/j.econmod.2012.07.016

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