Equities and Commodities Comovements: Evidence from Emerging Markets

Maria E. de Boyrie and Ivelina Pavlova ()
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Maria E. de Boyrie: Department of Finance, MSC 3FIN, College of Business, New Mexico State University, P.O. BOX 30001, Las Cruces, NM 88003, USA
Ivelina Pavlova: College of Business, University of Houston – Clear Lake, 2700 Bay Area Blvd., Box 70, Houston, TX 77058, USA

Global Economy Journal (GEJ), 2018, vol. 18, issue 3, 1-14

Abstract: The financialization of commodities and their inclusion in financial portfolios as part of an investment strategy may result in higher correlations and volatility spillovers between commodity and equity markets. In this paper, we estimate the correlation between equity markets and commodities using the dynamic conditional correlation (DCC) model, while emphasizing the differences between emerging and developed markets co-movements with commodities. The results reveal that certain emerging markets, especially those in Asia, show a much lower level of co-movement with commodities than developed markets do, while Latin American equities exhibit a higher level of integration with commodities. Furthermore, it is found that both agricultural and precious metals commodities offer better diversification possibilities in the less developed markets. We also find that increases in the CBOE Volatility Index (VIX) are related to higher agriculture commodities-equities correlations, while commodity net index investment has limited explanatory power in our study.

Keywords: emerging markets; commodities; dynamic conditional correlation (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1142/GEJ-2017-0075

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