Commodity and Equity Markets: Some Stylized Facts from a Copula Approach
AbstractIn this paper, we propose to identify the dependence structure existing between the returns of equity and commodity futures and its evolution through the past 20 years. The key point is that we do not do not impose the dependence structure but let the data select it. To do so, we model the dependence between commodity (metal, agriculture and energy) and stock markets using a flexible approach that allows us to investigate whether the co-movement is : (i) symmetric and occurring most of the time, (ii) symmetric and occurring mostly during extreme events and (iii) asymmetric and occurring mostly during extreme events. We also allow for this dependence to be time-varying from January 1990 to February 2012. Our analysis uncovers three major stylized facts. First, we find that the dependence between commodity and stock markets is time varying, symmetric and occurs most of the time (as opposed to mostly in extreme events). Second, not allowing for time-varying parameters in the dependence distribution generates a bias toward evidence of tail dependence. Similarly, considering only tail dependence may lead to wrong evidence of asymmetry. Third, a growing comovement between industrial metals and equity markets is identified as early as in 2003, a comovement that spreads to all commodity classes and becomes unambiguously stronger with the global financial crisis after Fall 2008.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 39860.
Date of creation: Jul 2012
Date of revision:
copula; commodity market; time varying; tail-dependence; comovement; equity market;
Other versions of this item:
- Delatte, Anne-Laure & Lopez, Claude, 2013. "Commodity and equity markets: Some stylized facts from a copula approach," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5346-5356.
- Delatte, Anne-Laure & Lopez, Claude, 2013. "Commodity and Equity Markets: Some Stylized Facts from a Copula Approach," CEPR Discussion Papers 9558, C.E.P.R. Discussion Papers.
- Delatte, A-L. & Lopez, C., 2013. "Commodity and Equity Markets: Some Stylized Facts from a Copula," Working papers 421, Banque de France.
- F30 - International Economics - - International Finance - - - General
- C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
- Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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