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Financialized Commodities and Stock Indices Volatilities

Rangga Handika and Sania Ashraf

European Research Studies Journal, 2018, vol. XXI, issue 1, 153-164

Abstract: We investigate the relationship between commodity returns and macroeconomic fluctuations. Using realized volatility at different series and different moving average windows in the eight financialized commodities and three stock indices (NASDAQ, DJIA and SP500), we find that the fluctuation of NASDAQ, DJIA and SP500 returns tend to be statistically significant in explaining the variation of volatilities of commodity returns.This finding is strong for all eight financialized commodities and at different returns series. However, the directions on how the index volatility affect the commodity volatility are different. Higher realized volatility of NASDAQ return causes lower realized volatility of financialized commodity returns while higher realized volatility of SP500 return causes higher realized volatility of financialized commodity return.DJIA has different directions in each series. Realizing that a lot of companies comprising NASDAQ and SP500 indices while only few companies comprising DJIA index, we conclude that our finding is consistent with the theory of well-diversified portfolio.

Keywords: Commodity markets; volatility; moving average; stock indices. JEL Classification: G11; G31; Q02. (search for similar items in EconPapers)
Date: 2018
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