Commodity and equity markets: Some stylized facts from a copula approach

Anne-Laure Delatte and Claude Lopez

Journal of Banking & Finance, 2013, vol. 37, issue 12, 5346-5356

Abstract: In this paper, we propose to identify the dependence structure that exists between returns on equity and commodity futures and its development over the past 20years. The key point is that we do not impose any 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) symmetrical and frequent, (ii) (a) symmetrical and mostly present during extreme events and (iii) asymmetrical and mostly present during extreme events. We also allow for this dependence to be time-varying from January 1990 to February 2012. Our analysis uncovers three major stylised facts. First, we find that the dependence between commodity and stock markets is time-varying, symmetrical and occurs most of the time (as opposed to mostly during extreme events). Second, not allowing for time-varying parameters in the dependence distribution generates a bias towards an evidence of tail dependence. Similarly, considering only tail dependence may lead to false evidence of asymmetry. Third, a growing co-movement between industrial metals and equity markets is identified as early as 2003; this co-movement spreads to all commodity classes and becomes unambiguously stronger with the global financial crisis after Fall 2008.

Keywords: Copula; Commodity market; Time varying; Tail-dependence; Comovement; Equity market (search for similar items in EconPapers)
JEL-codes: C20 F30 G10 Q (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (90)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426613003002
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Commodity and Equity Markets: Some Stylized Facts from a Copula Approach (2014)
Working Paper: Commodity and Equity Markets: Some Stylized Facts from a Copula (2013)
Working Paper: Commodity and Equity Markets: Some Stylized Facts from a Copula Approach (2013)
Working Paper: Commodity and Equity Markets: Some Stylized Facts from a Copula Approach (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:12:p:5346-5356

DOI: 10.1016/j.jbankfin.2013.06.012

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().