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Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: Futures basis, inventory and commodity price volatility: An empirical analysis
Author(s): Symeonidis, Lazaros
Prokopczuk, Marcel
Brooks, Chris
Lazar, Emese
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Keywords: Forward curves
Commodity price volatility
Theory of storage
Convenience yield
Issue Date: Nov-2012
Date Deposited: 7-Oct-2013
Citation: Symeonidis L, Prokopczuk M, Brooks C & Lazar E (2012) Futures basis, inventory and commodity price volatility: An empirical analysis. Economic Modelling, 29 (6), pp. 2651-2663.
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.
DOI Link: 10.1016/j.econmod.2012.07.016
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