Fractional dynamics in international commodity prices

A study tests for long memory across a variety of commodity spot prices. The data set consists of prices for 21 commodities traded on internationally important markets and a summary commodity price index. The testing methodology employed is the semi-nonparametric procedure suggested by Geweke and Porter-Hudak (1984), which can potentially improve estimation efficiency over the nonparametric rescaled-range approach. To provide robust evidence regarding the low-frequency properties of the sample commodity prices, the series are also subjected to 2 unit root tests that differ in their null hypothesis; these tests are the Phillips-Perron and Kwiatkowski, Phillips, Schmidt, and Shin unit-root tests. The obtained evidence suggests that characterization of the low-frequency properties for commodity prices based on integer integration tests can lead to erroneous inferences. A fractional order of integration is found for some commodity prices which appears to be robust. For other commodity prices additional flexible representations should be considered.