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The Economics of Commodity Markets

Book Description

As commodity markets have continued their expansion an extensive and complex financial industry has developed to service them. This industry includes hundreds of participating firms, including asset managers, brokers, consultants, verification agencies and a myriad of other institutions. Universities and other training institutions have responded to this rapid expansion of commodity markets as well as their substantial future growth potential by launching specialized courses on the subject.

The Economics of Commodity Markets attempts to bridge the gap between academics and working professionals by way of a textbook that is both theoretically informative and practical. Based in part on the authors' teaching experience of commodity finance at the University Paris Dauphine, the book covers all important commodity markets topics and includes coverage of recent topics such as financial applications and intuitive economic reasoning.

The book is composed of three parts that cover: commodity market dynamics, commodities and the business cycle, and commodities and fundamental value. The key original approach to the subject matter lies in a shift away from the descriptive to the econometric analysis of commodity markets. Information on market trends of commodities is presented in the first part, with a strong emphasis on the quantitative treatment of that information in the remaining two parts of the book. Readers are provided with a clear and succinct exposition of up-to-date financial economic and econometric methods as these apply to commodity markets. In addition a number of useful empirical applications are introduced and discussed.

This book is a self-contained offering, discussing all key methods and insights without descending into superfluous technicalities. All explanations are structured in an accessible manner, permitting any reader with a basic understanding of mathematics and finance to work their way through all parts of the book without having to resort to external sources.

Table of Contents

  1. Cover
  2. Series
  3. Title Page
  4. Copyright
  5. Dedication
  6. Preface
  7. List of Figures
  8. List of Tables
  9. Acronyms
  10. Part I: Commodity Market Dynamics
    1. PLAN OF PART I
    2. Chapter 1: Individual Dynamics: From Trends to Risks
      1. 1.1 BACKWARDATION, CONTANGO AND COMMODITY RISK PREMIUM
      2. 1.2 UNDERSTANDING COMMODITIES’ MOMENTA
      3. 1.3 VOLATILITY TO RETURNS SPILLOVERS AND TAIL EVENTS IN COMMODITIES
      4. REFERENCES
    3. Chapter 2: Cross-Asset Linkages
      1. 2.1 COMMON RISK FACTORS IN COMMODITIES
      2. 2.2 VOLATILITY SPILLOVERS IN COMMODITY MARKETS
      3. REFERENCES
  11. Part II: Commodities and the Business Cycle
    1. PLAN OF PART II
    2. Chapter 3: The Reaction of Commodity Markets to Economic News
      1. 3.1 MEASURING THE IMPACT OF PRICE DISCOVERY ON ASSET PRICES
      2. 3.2 KEY INSIGHTS FROM THE ACADEMIC LITERATURE
      3. 3.3 DATABASE OF NEWS
      4. 3.4 AN EXAMPLE: S&P 500, 10Y AND USD
      5. 3.5 COMMODITY INDICES
      6. 3.6 DEPENDENCE ON THE BUSINESS CYCLE: NBER RECESSIONS/EXPANSION PHASES
      7. 3.7 ROLLING ANALYSIS
      8. 3.8 PRELIMINARY FINDINGS
      9. 3.9 MARKET-BY-MARKET ANALYSIS
      10. 3.10 CONCLUDING REMARKS
      11. REFERENCES
    3. Chapter 4: Economic Regimes and Commodity Markets as an Asset Class
      1. 4.1 INDEX PERFORMANCES, THE FED AND THE NBER CRISES
      2. 4.2 MEASURING THE BUSINESS CYCLE
      3. 4.3 TO WHICH BUSINESS CYCLE ARE THE COMMODITY MARKETS RELATED?
      4. 4.4 COMMODITY PERFORMANCES DEPENDING ON THE NATURE OF EACH ECONOMIC REGIME
      5. 4.5 PERFORMANCE ANALYSIS
      6. 4.6 CONCLUDING REMARKS
      7. REFERENCES
  12. Part III: Commodities and Fundamental Value
    1. RATIONALE BEHIND COINTEGRATION
    2. EQUILIBRIUM RELATIONSHIPS: ECONOMIC AND MARKET-SPECIFIC FACTORS
    3. INTERACTIONS WITH ASSET MARKETS
    4. RELATED ISSUES
    5. PLAN OF PART III
    6. Chapter 5: Cross-Commodity Linkages
      1. 5.1 A PRIMER ON GRANGER CAUSALITY TESTING AND COINTEGRATION
      2. 5.2 DATASET AND UNIT ROOT TEST RESULTS
      3. 5.3 COINTEGRATION IN AGRICULTURAL MARKETS
      4. 5.4 COINTEGRATION IN INDUSTRIAL METALS MARKETS
      5. 5.5 COINTEGRATION IN PRECIOUS METALS MARKETS
      6. 5.6 COINTEGRATION IN ENERGY MARKETS
      7. 5.7 CONCLUDING REMARKS
      8. REFERENCES
    7. Chapter 6: Cointegration with Traditional Asset Markets
      1. 6.1 DATASET AND UNIT ROOT TEST RESULTS
      2. 6.2 COINTEGRATION BETWEEN THE GSCI SUB-INDICES, S&P 500 AND US 10-YEAR RATE
      3. 6.3 COINTEGRATION BETWEEN THE GSCI SUB-INDICES AND EXCHANGE RATES
      4. 6.4 CONCLUDING REMARKS
      5. REFERENCES
    8. Chapter 7: Cointegration with Industrial Production and Inflation
      1. 7.1 DATASET AND UNIT ROOT TEST RESULTS
      2. 7.2 COINTEGRATION BETWEEN THE GSCI SUB-INDICES AND INDUSTRIAL PRODUCTION
      3. 7.3 COINTEGRATION BETWEEN THE GSCI SUB-INDICES, INFLATION AND MONETARY INDICES
      4. 7.4 CONCLUDING REMARKS
      5. REFERENCES
  13. Index