Co-movements in commodity prices: Global, sectoral and commodity-specific factors

•We study the co-movement in commodity prices with a dynamic latent factor model.•We decompose commodity prices into global, sectoral, and idiosyncratic components.•A common global factor is an important source of volatility for commodity prices.•The common dynamic properties increase in importance since 2004.

This paper characterizes the co-movements in commodity prices with a dynamic latent factor model that decomposes commodity returns into global, sectoral, and idiosyncratic components. The results indicate that global and sectoral factors are important sources of co-movements in commodity returns. A sub-sample analysis further reveals that the global factor increases significantly in importance since 2004, which indicates an increasing integration among commodity markets.