Commodity and Equity Markets: Some Stylized Facts from a Copula Approach
In 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.
|Date of creation:||Jul 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Frankel, Jeffrey & Rose, Andrew K., 2010.
"Determinants of Agricultural and Mineral Commodity Prices,"
Working Paper Series
rwp10-038, Harvard University, John F. Kennedy School of Government.
- Jeffrey A Frankel & Andrew K Rose, 2010. "Determinants of Agricultural and Mineral Commodity Prices," RBA Annual Conference Volume, in: Renée Fry & Callum Jones & Christopher Kent (ed.), Inflation in an Era of Relative Price Shocks Reserve Bank of Australia.
- Frankel, Jeffrey A. & Rose, Andrew K., 2010. "Determinants of Agricultural and Mineral Commodity Prices," Scholarly Articles 4450126, Harvard Kennedy School of Government.
- Koedijk, Kees & Kole, Erik & Verbeek, Marno, 2006.
"Selecting Copulas for Risk Management,"
CEPR Discussion Papers
5652, C.E.P.R. Discussion Papers.
- Y. Malevergne & D. Sornette, 2001.
"Testing the Gaussian Copula Hypothesis for Financial Assets Dependences,"
- Y. Malevergne & D. Sornette, 2003. "Testing the Gaussian copula hypothesis for financial assets dependences," Quantitative Finance, Taylor & Francis Journals, vol. 3(4), pages 231-250.
- Y. Malevergne & D. Sornette, 2001. "Testing the Gaussian Copula Hypothesis for Financial Assets Dependences," Finance 0111003, EconWPA.
- Yannick Malevergne & Didier Sornette, 2003. "Testing the Gaussian copula hypothesis for financial assets dependences," Post-Print hal-00520539, HAL.
- Robert W. Kolb, 1992. "Is normal backwardation normal?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 12(1), pages 75-91, 02.
- Ke Tang & Wei Xiong, 2010. "Index Investment and Financialization of Commodities," NBER Working Papers 16385, National Bureau of Economic Research, Inc.
- Desmoulins-Lebeault, François & Kharoubi-Rakotomalala, Cécile, 2012. "Non-Gaussian diversification: When size matters," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 1987-1996.
- Andrew Patton, 2004.
"Modelling Asymmetric Exchange Rate Dependence,"
wp04-04, Warwick Business School, Finance Group.
- Daskalaki, Charoula & Skiadopoulos, George, 2011. "Should investors include commodities in their portfolios after all? New evidence," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2606-2626, October.
- Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-50, July.
- Kharoubi, Cécile & Ané, Thierry, 2003. "Dependance Structure and Risk Measure," Economics Papers from University Paris Dauphine 123456789/2332, Paris Dauphine University.
- Silvennoinen, Annastiina & Thorp, Susan, 2013.
"Financialization, crisis and commodity correlation dynamics,"
Journal of International Financial Markets, Institutions and Money,
Elsevier, vol. 24(C), pages 42-65.
- Annastiina Silvennoinen & Susan Thorp, 2010. "Financialization, Crisis and Commodity Correlation Dynamics," Research Paper Series 267, Quantitative Finance Research Centre, University of Technology, Sydney.
- Chollete, Lorán & de la Peña, Victor & Lu, Ching-Chih, 2011. "International diversification: A copula approach," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 403-417, February.
- David Bicchetti & Nicolas Maystre, 2012.
"The Synchronized And Long-Lasting Structural Change On Commodity Markets: Evidence From High Frequency Data,"
UNCTAD Discussion Papers
208, United Nations Conference on Trade and Development.
- Bicchetti, David & Maystre, Nicolas Maystre, 2013. "The synchronized and long-lasting structural change on commodity markets: Evidence from high frequency data," Algorithmic Finance, IOS Press, vol. 2(3-4), pages 233-239.
- Bicchetti, David & Maystre, Nicolas, 2012. "The synchronized and long-lasting structural change on commodity markets: evidence from high frequency data," MPRA Paper 37486, University Library of Munich, Germany.
- Ling Hu, 2006. "Dependence patterns across financial markets: a mixed copula approach," Applied Financial Economics, Taylor & Francis Journals, vol. 16(10), pages 717-729.
- Ning, Cathy, 2010. "Dependence structure between the equity market and the foreign exchange market-A copula approach," Journal of International Money and Finance, Elsevier, vol. 29(5), pages 743-759, September.
- Thierry Ane & Cecile Kharoubi, 2003. "Dependence Structure and Risk Measure," The Journal of Business, University of Chicago Press, vol. 76(3), pages 411-438, July.
- François Longin, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, 04.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:39860. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.