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Exploring the dynamics of the equity–commodity nexus: A study of base metal futures

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  • Ipsita Saishree
  • Puja Padhi

Abstract

This empirical exercise explores different aspects of the time‐varying linkage between the commodity and equity markets in India, focusing on base metal futures. The Dynamic Conditional Correlation model (2002) and Diebold–Yilmaz spillover index (2012) are employed to ascertain the presence, pattern, direction, and magnitude of the connectedness between the returns of base metal futures and related equity indices over the period of 2006–2019. The study builds on a less‐studied “input” channel of linkage between the two, reckoning with the economic fundamentals of demand–supply interaction. Our results show that 36% of the return forecast error variance originates from spillovers, to which the contribution of equity indices is minimal. It indicates segmentation between the two markets which offer the scope for potential diversification. Further, base metal futures are the net transmitters and equity indices are the net recipients of spillovers. Positive correlations outweigh the negative correlations, in both frequency and magnitude.

Suggested Citation

  • Ipsita Saishree & Puja Padhi, 2022. "Exploring the dynamics of the equity–commodity nexus: A study of base metal futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(8), pages 1573-1596, August.
    • Handle: RePEc:wly:jfutmk:v:42:y:2022:i:8:p:1573-1596
    DOI: 10.1002/fut.22358
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    2. You‐How Go & Jia‐Jun Teo & Kam Fong Chan, 2023. "The effectiveness of crude oil futures hedging during infectious disease outbreaks in the 21st century," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(11), pages 1559-1575, November.

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