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Dependence of stock and commodity futures markets in China: Implications for portfolio investment

Author

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  • Hammoudeh, Shawkat
  • Nguyen, Duc Khuong
  • Reboredo, Juan Carlos
  • Wen, Xiaoqian

Abstract

We examine the recent trends in dependence structure between the fast-growing commodity markets and the stock markets in China. We address this issue by using copula functions that allow for measuring both average and tail dependence. Our results provide evidence of low and positive correlations between these markets, suggesting that commodity futures are a desirable asset class for portfolio diversification. By comparing the market risks of alternative portfolio strategies, we show that Chinese investors can take advantage of commodity futures during different times to realize risk diversification and downside risk reduction benefits.

Suggested Citation

  • Hammoudeh, Shawkat & Nguyen, Duc Khuong & Reboredo, Juan Carlos & Wen, Xiaoqian, 2014. "Dependence of stock and commodity futures markets in China: Implications for portfolio investment," Emerging Markets Review, Elsevier, vol. 21(C), pages 183-200.
    • Handle: RePEc:eee:ememar:v:21:y:2014:i:c:p:183-200
    DOI: 10.1016/j.ememar.2014.09.002
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    More about this item

    Keywords

    China; Commodity futures; Equity markets; Co-movement; Copulas; Portfolio risk management;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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