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. •Asymmetric return–volatility relationships fundamentally changed for most commodities in the mid-2000s.•Change in volatility asymmetry explained with the financialization of commodities.•All commodities affected except agricultural commodities and industrial metals.•Strongest effects during global financial crisis (2007–2009).