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Are Commodity Prices Driven by Fundamentals?
Version of Record online: 21 JAN 2013
© 2013 The Author Economic Notes © 2013 Banca Monte dei Paschi di Siena SpA.
Volume 42, Issue 1, pages 19–46, February 2013
How to Cite
De Meo, E. (2013), Are Commodity Prices Driven by Fundamentals?. Economic Notes, 42: 19–46. doi: 10.1111/ecno.12001
- Issue online: 21 JAN 2013
- Version of Record online: 21 JAN 2013
Physical scarcity is hardly sufficient to explain commodity price swings. However, despite of clues of commodity market inefficiency in the last decade, excess volatility in commodity markets emerges only under strong assumptions. When we allow for non-stationarity in commodity prices and time variation in commodity-specific risk premia, evidence of commodity market inefficiency becomes significantly weaker. Moreover, there is some evidence of commodity-specific regime changes in commodity markets, with negligible or even positive correlation between efficiency and market liquidity.