Revisiting the valuable roles of commodities for international stock markets

In this paper, we re-examine the safe haven, hedge, and diversification potentials of 21 commodities belonging to various commodity groups for 49 international stock markets belonging to countries in various stages of economic development. Using daily data from 2001 to 2018, we conduct an extensive analysis that considers the tails of the return distributions. Our main results show valuable hedge and safe haven roles for specific commodities, especially precious and industrial metals. Some of the results seem to be both commodity and country specific, suggesting the need to combine each stock market index with its best commodity match to get the highest benefits. Unsurprisingly, gold is indisputably the strongest safe haven asset, especially in many developed stock markets, confirming previous studies. The hedge effectiveness is highest for advanced emerging and a few developed stock markets. Commodities offer the highest conditional diversification benefits in an equally weighted portfolio for the stock markets of New Zealand and Norway, secondary emerging and frontier market groups.