The Return–Volatility Relation in Commodity Futures Markets

Carl Chiarella, Boda Kang, Christina Sklibosios Nikitopoulos, Thuy-Duong Tô

Research output: Contribution to journalArticlepeer-review


By employing a continuous time multi-factor stochastic volatility model, the dynamic relation between returns and volatility in the commodity futures markets is analyzed. The model is estimated by using an extensive database of gold and crude oil futures and futures options. A positive relation in the gold futures market and a negative relation in the crude oil futures market subsist, especially over periods of high volatility principally driven by market-wide shocks. The opposite relation holds over quiet periods typically driven by commodity-specific effects. According to the proposed convenience yield effect, normal (inverted) commodity futures markets entail a negative (positive) relation.
Original languageEnglish
Pages (from-to)127-152
Number of pages26
JournalThe Journal of Futures Markets
Issue number2
Early online date12 Mar 2015
Publication statusPublished - 5 Jan 2016

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