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Common industry exposure in seemingly unrelated commodities

journal contribution
posted on 2009-01-01, 00:00 authored by M Chng
We propose and document robust evidence of cross-market return, volatility, and volume interactions among futures contracts written seemingly unrelated commodities exposed to a common industry. On the Tokyo Commodity Exchange, we find such evidence in natural rubber (NR), aluminum (AL) and gasoline (GA) futures markets, which are complementary commodities heavily consumed by Japan's automobile industry. Our VAR results indicate that (i) for shorter dynamics, NR and GA volatility both influence AL volatility; GA volume affects NR volatility and volume; the GA market is immune to both NR and AL trading activities; (ii) for longer dynamics, AL volume affects both NR volume and GA volatility; NR volume influences GA volume. These results are robust to lag-specifications, volatility measures and are consistent with full BEKK-GARCH estimates. Further analysis using the silver contract, TOCOM and TOPIX transportation indices, shows that a commodity market factor cannot explain our result. Our results offer insights into how commodity and equity markets relate at an industry level.

History

Journal

Review of futures markets

Volume

18

Issue

1

Pagination

7 - 38

Publisher

Kent State University

Location

Kent, Ohio

ISSN

1933-7116

Language

eng

Publication classification

C1 Refereed article in a scholarly journal

Copyright notice

2009, Kent State University

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