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| Julien Chevallier, Florian Ielpo and Ling-Ni Boon |
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| ''Common risk factors in commodities'' |
| ( 2013, Vol. 33 No.4 ) |
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| This article aims at establishing an understanding of the common risk factors in commodity markets, as well as their interactions with equities, currencies and interest rates. Since commodity markets
often exhibit cross-sectional dependency, common risk factors exist and can be identified. By using daily data from 1995 to 2012, the econometric methodology resorts to factor modeling combined
with a criterion to determine the number of factors presented in Alessi et al.(2010). The operational significance of the results is to evaluate risk-adjusted performance of portfolios allocated to
commodities, and to help building cross-asset strategies. Investors can then pinpoint the correlation between any two-position taken within commodity markets, and attempt to profitably exploit the
common sources of risk. In turn, it should provide the researcher with an increased understanding of the risks at work in the commodity world. |
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| Keywords: Common Risk Factor; Commodities; Factor Model; Principle Component Analysis |
JEL: C1 - Econometric and Statistical Methods: General
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| Manuscript Received : Dec 14 2012 | | Manuscript Accepted : Nov 05 2013 |
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