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Good volatility, bad volatility and the cross section of commodity returns
Örebro University, Örebro University School of Business.ORCID iD: 0000-0001-8124-328x
Örebro University, Örebro University School of Business.ORCID iD: 0009-0003-9581-118X
2025 (English)In: Finance Research Letters, ISSN 1544-6123, E-ISSN 1544-6131, Vol. 86, no Part: D, article id 108656Article in journal (Refereed) Published
Abstract [en]

This article studies whether asymmetries in volatility help explain the cross section of commodity returns. We decompose realized variance into upside and downside components and construct a normalized difference measure, the relative signed jump (RSJ), following Bollerslev et al. (2020). A trading strategy that goes long the top tercile of commodities with the highest RSJ and shorts the bottom tercile delivers a statistically and economically significant annualized excess return of-6.29%. We also find that our tradable RSJ factor explains the cross section of commodity returns beyond well-established factors in a multivariate price setting context. Our results also show that the pricing ability of volatility asymmetries is distinct from other higher order moments such as realized skewness.

Place, publisher, year, edition, pages
Elsevier, 2025. Vol. 86, no Part: D, article id 108656
Keywords [en]
Commodity returns, Semivariance, Signed jumps
National Category
Economics Statistics in Social Sciences
Identifiers
URN: urn:nbn:se:oru:diva-124940DOI: 10.1016/j.frl.2025.108656ISI: 001600422000004OAI: oai:DiVA.org:oru-124940DiVA, id: diva2:2013183
Funder
Jan Wallander and Tom Hedelius Foundation and Tore Browaldh Foundation, BFv22-0005Jan Wallander and Tom Hedelius Foundation and Tore Browaldh Foundation, W19-0021Available from: 2025-11-12 Created: 2025-11-12 Last updated: 2025-11-12Bibliographically approved

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Kiss, TamásFerreira Batista Martins, Igor

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Citation style
  • apa
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  • de-DE
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  • asciidoc
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