Volatility and Convenience Yield in Commodity Market

With this work we aim to analyze the changing in the accuracy of the fundamental relation between convenience yield and commodity prices in high and low volatility commodity prices environments. Convenience yield embodies a kind of predictive power of future prices and this research explores its connection with volatility of commodity prices and how and if its predictive power could be influenced by commodity prices volatility. To develop our research we apply the present value model implemented by Pindyck (1992) to five different commodities: crude oil, natural gas, corn, wheat and gold. Our results show that the energy prices are particularly reactive to convenience yields movement especially in the high volatility frameworks.