Links Between Commodity Futures And Stock Market: Diversification Benefits, Financialization And Financial Crises

Sercan Demiralay and Veysel Ulusoy

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we analyze time-varying correlations between commodity markets and S&P 500 index, employing a recent and novel technique: asymmetric dynamic conditional correlation (ADCC) model. Using weekly data from January 3, 1992 to December 27, 2013, we provide evidence of highly volatile correlations, which substantially increase after the 2007-2008 financial crisis. We also find that conditional correlations and variances are positively linked in overall, which implies deterioration in diversification benefits. Finally, we examine the impacts of financial crises on the conditional correlations and find that external shocks have different effects on the correlations. Our results have potential implications for investors, portfolio managers, commodity producers and policy makers.

Keywords: Commodity indices; S&P 500; Diversification; Financial Crises; ADCC-GARCH Model; Financialization (search for similar items in EconPapers)
JEL-codes: C32 G10 (search for similar items in EconPapers)
Date: 2014-08-01
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Citations: View citations in EconPapers (1)

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