Financial Crises, Financialization of Commodity Markets and Correlation of Agricultural Commodity Index with Precious Metal Index and S&P500

Mehmet Fatih Öztek and Nadir Ocal ()
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Nadir Ocal: Department of Economics, METU

No 1302, ERC Working Papers from ERC - Economic Research Center, Middle East Technical University

Abstract: This 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.

Keywords: Multivariate GARCH; Smooth Transition Conditional Correlation; Portfolio Diversification; Financialization of Commodity Markets; Index Investment and Equity-Commodity Co-movements. (search for similar items in EconPapers)
JEL-codes: C32 C58 F36 G15 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2013-02, Revised 2013-02
New Economics Papers: this item is included in nep-agr
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:met:wpaper:1302

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