The long and short of commodity tails and their relationship to Asian equity markets

Robert J. Powell, Duc H. Vo, Thach N. Pham, Abhay K. Singh

Research output: Contribution to journalArticleResearchpeer-review

Abstract

We aim to determine if the relative tail risk of commodities remains consistent over time and whether there is association between commodity tail risk and Asian equity markets. We examine the tail risk of 24 commodities over a 12 year period. Tail risk is measured using Conditional Value at Risk (CVaR), which measures volatility beyond a specified threshold. We classify tails for individual commodities as long and short based on their CVaR relative to the market. Overall, livestock commodities have the lowest CVaR risk, with some of the energy and metals commodities having the highest. However, the most interesting finding is that there is no consistency in relative tail risk rankings among commodities over time, and commodities having among the shortest tails in one period can have some of the longest in another period. Thus the relative tail risk of commodities changes significantly over time. We find that measured by CvaR, commodities generally have higher risk than Asian equities and that the relationship between equities and commodities is inconsistent in both strength and direction over time.
LanguageEnglish
Pages32-44
Number of pages13
JournalJournal of Asian Economics
Volume52
DOIs
Publication statusPublished - Oct 2017
Externally publishedYes

Fingerprint

Equity markets
Asia
Commodities
Tail risk
Conditional value at risk
Equity
Ranking
Energy
Metals
Livestock
Risk measures

Keywords

  • Commodities
  • Conditional value at risk
  • Asian equity markets

Cite this

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The long and short of commodity tails and their relationship to Asian equity markets. / Powell, Robert J.; Vo, Duc H.; Pham, Thach N.; Singh, Abhay K.

In: Journal of Asian Economics, Vol. 52, 10.2017, p. 32-44.

Research output: Contribution to journalArticleResearchpeer-review

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AU - Vo, Duc H.

AU - Pham, Thach N.

AU - Singh, Abhay K.

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AB - We aim to determine if the relative tail risk of commodities remains consistent over time and whether there is association between commodity tail risk and Asian equity markets. We examine the tail risk of 24 commodities over a 12 year period. Tail risk is measured using Conditional Value at Risk (CVaR), which measures volatility beyond a specified threshold. We classify tails for individual commodities as long and short based on their CVaR relative to the market. Overall, livestock commodities have the lowest CVaR risk, with some of the energy and metals commodities having the highest. However, the most interesting finding is that there is no consistency in relative tail risk rankings among commodities over time, and commodities having among the shortest tails in one period can have some of the longest in another period. Thus the relative tail risk of commodities changes significantly over time. We find that measured by CvaR, commodities generally have higher risk than Asian equities and that the relationship between equities and commodities is inconsistent in both strength and direction over time.

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