A sentiment-based approach to convenience yield dynamics in commodity futures markets

Qayum, Massab

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https://hdl.handle.net/2142/129320 Copy

Description

Title

A sentiment-based approach to convenience yield dynamics in commodity futures markets

Author(s)

Qayum, Massab

Issue Date

2025-05-07

Director of Research (if dissertation) or Advisor (if thesis)

Janzen, Joseph P.

Committee Member(s)

• Hutchins, Jared
• Devesa, Maria Teresa Serra

Department of Study

Agr & Consumer Economics

Discipline

Agricultural & Applied Econ

Degree Granting Institution

University of Illinois Urbana-Champaign

Degree Name

M.S.

Degree Level

Thesis

Keyword(s)

convenience yield, commodity futures, sentiment

Abstract

Convenience yield acts as a negative cost (i.e. benefit) of holding a physical commodity and causes inverted markets or backwardation. The theory of storage relies on convenience yield to explain these backwardations through the 'Working Curve,' which has been empirically documented for storable commodities using annual stocks data. However, the intra-year dynamics of convenience yield is difficult to explore using annual inventories data. This study introduces a novel approach to analyzing convenience yield dynamics in commodity markets by leveraging sentiment analysis, enabling a more granular understanding of convenience yield dynamics in corn and soybean markets. The research questions we are trying to answer are twofold: how forward-looking and efficient is the information captured from news sentiment for storable commodity prices, and can it help explain convenience yield dynamics in these markets? The Global News Index developed by the Cline Center for Advanced Social Research at the University of Illinois is used to track global news attention to commodity markets. Futures prices and implied volatilities for corn and soybean are extracted from Bloomberg. The results from structural VAR show significant, immediate, and consistent negative responses in the implied volatilities to news sentiment shocks. No significant, immediate, and consistent responses are observed in convenience yield. Implied volatility tends to respond negatively by 0.5 to 1.5 percentage points to shocks in news sentiment, specifically in financial and soybean-specific news shocks. In conclusion, news sentiment does not provide forward-looking information regarding convenience yield dynamics but provides some information regarding price uncertainty 1-3 months ahead.

Graduation Semester

2025-05

Type of Resource

Thesis

Handle URL

https://hdl.handle.net/2142/129320

Copyright and License Information

Copyright 2025 Massab Qayum

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