Question

What kind of event risk is associated with commodities? Commodities: Select one: a. tend to have negative event risk because their returns are negatively correlated with stock returns b. tend to have positive event risk because of unexpected reduction in the supply of a commodity c. are not exposed to event risk like stocks or bonds d. tend to have negative event risk because supply levels are easily predicted

Answer 1

Commodities will always have a negative event risk associated with them because their supply levels are easily predicted and any change in supply levels will cause negative impacts on its price so commodity have a negative event risk as one can see in the case of OIL, even if the production has gone down, the supply are lower the prices are still lower, because the supply levels impact negatively to the price of commodity.

they do not have positive event list because even if there is an unexpected cut in the production their prices will be still go low because one can see in the case of oil rightright now the demand is lower but the prices are all time low. These are also not related negatively to stocks.

Correct answer is option ( D,)