Liquidity Commonality in Commodities
Commodities have become an important asset class. However there has been little focus on commodities in the literature as compared to stocks and bonds. We show, using data from 16 agricultural, energy, industrial metal, precious metal, and livestock commodities, that there is a strong systematic liquidity factor (liquidity commonality) in commodities. This existed at the start of our sample period in 1997 but has become stronger over time. We also find that systematic liquidity risk is an important determinant of commodity returns. Finally, there is no consistent relation between changes in systematic stock market liquidity and changes in systematic commodity liquidity.
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