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Equities and Commodities Comovements: Evidence from Emerging Markets

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  • de Boyrie Maria E.

    (Department of Finance, MSC 3FIN, College of Business, New Mexico State University, P.O. BOX 30001, Las Cruces, NM 88003, USA)

  • Pavlova Ivelina

    (College of Business, University of Houston – Clear Lake, 2700 Bay Area Blvd., Box 70, Houston, TX 77058, USA)

Abstract

The financialization of commodities and their inclusion in financial portfolios as part of an investment strategy may result in higher correlations and volatility spillovers between commodity and equity markets. In this paper, we estimate the correlation between equity markets and commodities using the dynamic conditional correlation (DCC) model, while emphasizing the differences between emerging and developed markets co-movements with commodities. The results reveal that certain emerging markets, especially those in Asia, show a much lower level of co-movement with commodities than developed markets do, while Latin American equities exhibit a higher level of integration with commodities. Furthermore, it is found that both agricultural and precious metals commodities offer better diversification possibilities in the less developed markets. We also find that increases in the CBOE Volatility Index (VIX) are related to higher agriculture commodities-equities correlations, while commodity net index investment has limited explanatory power in our study.

Suggested Citation

  • de Boyrie Maria E. & Pavlova Ivelina, 2018. "Equities and Commodities Comovements: Evidence from Emerging Markets," Global Economy Journal, De Gruyter, vol. 18(3), pages 1-14, September.
    • Handle: RePEc:bpj:glecon:v:18:y:2018:i:3:p:14:n:1
    DOI: 10.1515/gej-2017-0075
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    Cited by:

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    3. Muhammad Abubakr Naeem & Saqib Farid & Safwan Mohd Nor & Syed Jawad Hussain Shahzad, 2021. "Spillover and Drivers of Uncertainty among Oil and Commodity Markets," Mathematics, MDPI, vol. 9(4), pages 1-26, February.
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    6. Cortazar, Gonzalo & Ortega, Hector & Rojas, Maximiliano & Schwartz, Eduardo S., 2021. "Commodity index risk premium," Journal of Commodity Markets, Elsevier, vol. 22(C).

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    More about this item

    Keywords

    emerging markets; commodities; dynamic conditional correlation;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • F15 - International Economics - - Trade - - - Economic Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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