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Financial Crises, Financialization of Commodity Markets and Correlation of Agricultural Commodity Index with Precious Metal Index and S&P500

Author

Listed:
  • M.Fatih Oztek

    (Department of Economics, METU)

  • Nadir Ocal

    (Department of Economics, METU)

Abstract

This paper tests and models time varying correlations among agricultural commodity, precious metal and S&P500 indices to uncover whether rising trend among these markets is a result of financialization of commodity markets and/or financial crisis. We particularly investigate the roles of market news, global and market volatility on the nature and dynamics of the correlation. Empirical results show that high volatility during financial crisis is the main source of high correlation of agricultural commodity index with S&P500 and precious metal index, and plays crucial role in correlation between precious metal index and S&P500, possibly due to increasing engagement of financial market investors in commodity markets during financial crisis. Hence, heterogeneous structure of commodity markets delivers better portfolio diversification opportunities during calm periods compared to turmoil periods of financial crisis.

Suggested Citation

  • M.Fatih Oztek & Nadir Ocal, 2013. "Financial Crises, Financialization of Commodity Markets and Correlation of Agricultural Commodity Index with Precious Metal Index and S&P500," ERC Working Papers 1302, ERC - Economic Research Center, Middle East Technical University, revised Feb 2013.
    • Handle: RePEc:met:wpaper:1302
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    File URL: http://erc.metu.edu.tr/en/system/files/menu/series13/1302.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Adam Zaremba, 2015. "Portfolio Diversification with Commodities in Times of Financialization," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 4(1), pages 18-36, January.
    2. Srivastava, Mrinalini & Rao, Amar & Parihar, Jaya Singh & Chavriya, Shubham & Singh, Surendar, 2023. "What do the AI methods tell us about predicting price volatility of key natural resources: Evidence from hyperparameter tuning," Resources Policy, Elsevier, vol. 80(C).

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    More about this item

    Keywords

    Multivariate GARCH; Smooth Transition Conditional Correlation; Portfolio Diversification; Financialization of Commodity Markets; Index Investment and Equity-Commodity Co-movements.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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