The asymmetric return-volatility relationship of commodity prices

There is a well documented asymmetric return-volatility effect of equity returns, that is, negative shocks increase volatility by more than positive shocks. This paper analyzes the return-volatility relationship of commodity prices and finds a positive (inverted) asymmetric effect with a tendency to weaken and converge towards an equity-like effect since the mid 2000s and particularly during the global financial crisis. A comparison of the findings with equity prices also reveals a strengthening of the asymmetric effect in equity markets. The change in the asymmetric volatility effect is consistent with the financialization of commodity markets and has strong portfolio implications.