Links Between Commodity Futures And Stock Market: Diversification Benefits, Financialization And Financial Crises

Demiralay, Sercan and Ulusoy, Veysel (2014): Links Between Commodity Futures And Stock Market: Diversification Benefits, Financialization And Financial Crises.

Abstract

In this paper, we analyze time-varying correlations between commodity markets and S&P 500 index, employing a recent and novel technique: asymmetric dynamic conditional correlation (ADCC) model. Using weekly data from January 3, 1992 to December 27, 2013, we provide evidence of highly volatile correlations, which substantially increase after the 2007-2008 financial crisis. We also find that conditional correlations and variances are positively linked in overall, which implies deterioration in diversification benefits. Finally, we examine the impacts of financial crises on the conditional correlations and find that external shocks have different effects on the correlations. Our results have potential implications for investors, portfolio managers, commodity producers and policy makers.

• Item Type: MPRA Paper
• Language: English
• Keywords: Commodity indices, S&P 500, Diversification, Financial Crises, ADCC-GARCH Model, Financialization,
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; G - Financial Economics > G1 - General Financial Markets > G10 - General

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