Commodities Inventory Effect

Does commodity price volatility increase when inventories are low? We are the first ones to document this relationship. To that aim, we estimate asymmetric volatility models for a large set of commodities over 1994-2011. Since inventories are hard to measure, especially for high frequency data, we use positive return shocks as a new original proxy for inventories and find that asymmetric GARCH models reveal a significant inventory effect for many commodities. The results look robust. They hold if we allow the unconditional variance to vary over time and if we relax the parametric form.