U.S. equity and commodity futures markets: Hedging or financialization?

In this paper, we investigate the hedging versus the financialization nature of commodity futures vis-à-vis the equity market using a ARMA filter-based correlation approach. Our results suggest that while gold futures are typically seen as a hedge against unfavorable fluctuations in the stock market, the majority of commodity futures appears to be treated as a separate asset class in line with their increasing financialization. Our results are robust to the presence of inflation, highlight the hedging role played by fuel (energy) commodity futures in the nineties, and reveal that the commodity financialization boosted since the 2000s. We also show that gold futures are partially a safe haven for equity investments in the short-term, but not in the mid-term. Finally, we uncover some hedging (financialization) of crude oil futures associated to global demand (oil supply) shocks.