Intermediary capital risk and commodity futures volatility

This paper explores the degree and structure of the dependence of commodity futures volatility on intermediary capital risk (ICR) and investigates the economic source of this association. The overall effect of ICR is negative and more significant for the post‐2008 period, although positive and negative ICR play asymmetric roles. Furthermore, we identify a heterogeneous structure of dependence across the volatility distribution as ICR strengthens toward upper volatility percentiles, whereas financialization in commodities flattens this dynamic trace. Finally, the ability of ICR to convey economic news is the most economically important source of the dependence.