Financial Crises, Financialization of Commodity Markets and Correlation of Agricultural Commodity Index with Precious Metal Index and S&P500
AbstractThis paper tests and models time varying correlations among agricultural commodity, precious metal and S&P500 indices to uncover whether rising trend among these markets is a result of financialization of commodity markets and/or financial crisis. We particularly investigate the roles of market news, global and market volatility on the nature and dynamics of the correlation. Empirical results show that high volatility during financial crisis is the main source of high correlation of agricultural commodity index with S&P500 and precious metal index, and plays crucial role in correlation between precious metal index and S&P500, possibly due to increasing engagement of financial market investors in commodity markets during financial crisis. Hence, heterogeneous structure of commodity markets delivers better portfolio diversification opportunities during calm periods compared to turmoil periods of financial crisis.
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Bibliographic InfoPaper provided by ERC - Economic Research Center, Middle East Technical University in its series ERC Working Papers with number 1302.
Length: 20 pages
Date of creation: Feb 2013
Date of revision: Feb 2013
Multivariate GARCH; Smooth Transition Conditional Correlation; Portfolio Diversification; Financialization of Commodity Markets; Index Investment and Equity-Commodity Co-movements.;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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