On the drivers of commodity co-movement: evidence from biofuels

Peñaranda, Francisco and Micola, Augusto (2011) On the drivers of commodity co-movement: evidence from biofuels. Financial Markets Group Discussion Papers (695). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

We use the recent introduction of biofuels to study the effect of industry factors on the relationships between wholesale commodity prices. Correlations between agricultural products and oil are strongest in the 2005-09 period, coinciding with the boom of biofuels, and remain substantial until 2011. We disentangle three possible drivers for the linkage: substitution, energy costs, and financialization. The timing and magnitude of the biofuels-to-oil relationships are different to those of other commodities, and far higher than can be justified by costs and financialization. Substitution and costs drive the monthly correlations of long-term futures, and each of the three contribute equally to the daily co-movement of the short-term ones. The findings survive many robustness checks and appear in the stock market.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2011 The Authors
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q1 - Agriculture > Q18 - Agricultural Policy; Food Policy O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Date Deposited:	29 Jun 2023 08:30
Last Modified:	14 Sep 2024 04:31
URI:	http://eprints.lse.ac.uk/id/eprint/119057

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