Comovement, Index Investing and the Financialization of Commodities

We investigate how the correlations amongst commodity futures have changed since the early 2000s. Using data from 1998 to 2011, we examine differences in the dependence structure of index and off-index commodities, and three major commodities indexes. We find that non-energy commodities included in the index exhibit an increase in comovement with the respective index, whereas commodities off the index do not. We interpret our findings as providing some evidence in support of post-2005 commodity financialization. We show that our results are robust to alternative explanations – non-trading effects and common fundamental characteristics. Finally, our results are supported by the analysis of high-frequency returns dynamics by means of the so called realised beta.