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Volatility transmission between commodities and Ibovespa in the period 2000–2016: Is there a possibility of diversification?

Pedro Vartanian

International Economics and Economic Policy, 2020, vol. 17, issue 2, No 6, 483-501

Abstract: Abstract In 2002, a cycle of high commodity prices in the international market began concomitantly with the trend of the main stock market index, especially in emerging stock exchanges. In Brazil, specifically, the main stock index (Ibovespa) presents a history of important composition of companies linked to the commodities sector, which suggests a relationship between the commodity prices and the stock market. Thus, the objective of the study was to evaluate the contagion of volatility between the commodity prices and the Ibovespa, through a multivariate GARCH model, to verify the possibility of diversification of investments. The research hypothesized that there is a strong relationship between the commodity prices and the Ibovespa index, with the presence of the contagion effect according to Forbes and Rigobon (2002), which inhibits the diversification of investments between the stocks that make up the index and the commodities on the international scene. The results partially corroborate the hypothesis formulated, since it was possible to observe a strong increase in conditional covariance between the two variables during the international financial crisis. On the other hand, the conditional correlation between the Ibovespa and the commodity prices showed that the relationship between the variables was relatively small in the periods before and after the 2008 crisis, which suggests that concomitant investments in commodities and the Ibovespa constitute a risk diversification strategy, contrary to what is commonly supposed.

Keywords: Contagion; Volatility; Commodities; Ibovespa; Multivariate GARCH (search for similar items in EconPapers)
JEL-codes: G11 G15 C58 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10368-019-00458-x

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