Correlations and volatility spillovers across commodity and stock markets: Linking energies,food, and gold |
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| Institution: | 1. Department of Finance, Faculty of Management and Economic Sciences of Tunis, El Manar University, B.P. 248, C.P. 2092, Tunis Cedex, Tunisia;2. Graduate School of Environmental Studies, Tohoku University, 6-6-20 Aramaki-Aza Aoba, Aoba-Ku, Sendai 980-8579, Japan;3. Graduate School of Public Policy, University of Tokyo, Japan;4. The Institute for Global Environmental Strategies, Hayama, Japan;1. Lebow College of Business, Drexel University, Philadelphia, PA, USA;2. IPAG Lab, IPAG Business School, Paris, France;3. Department of Economics, Universidade de Santiago de Compostela, Santiago de Compostela, Spain;4. School of Economics & Management, Southwest Jiao Tong University, China;1. IMM, Campus de Luminy, Case 907, 13288 Marseille cedex 09, France;2. IPAG LAB-IPAG Business School, 184, Boulevard Saint-Germain, 75006 Paris, France;1. Vienna University of Economics and Business, Department of Economics, Institute for International Economics, Welthandelsplatz 1, 1020 Vienna, Austria;2. University of Portsmouth, Economics and Finance Subject Group, Portsmouth Business School, Portland Street, Portsmouth PO1 3DE, United Kingdom;3. Johannes Kepler University, Department of Economics, Altenberger Strasse 69, 4040 Linz-Auhof, Austria;1. Department of Finance and Accounting, El Manar University, B.P. 248, C.P. 2092 Tunis Cedex, Tunisia;2. Lebow College of Business, Drexel University, Philadelphia, PA 19104-2875, United States;3. IPAG Lab, IPAG Business School, 184 Boulevard Saint-Germain, 75006 Paris, France;4. Department of Economics, Pusan National University, Busan 609-735, Republic of Korea |
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| Abstract: | This paper employs a VAR-GARCH model to investigate the return links and volatility transmission between the S&P 500 and commodity price indices for energy, food, gold and beverages over the turbulent period from 2000 to 2011. Understanding the price behavior of commodity prices and the volatility transmission mechanism between these markets and the stock exchanges are crucial for each participant, including governments, traders, portfolio managers, consumers, and producers. For return and volatility spillover, the results show significant transmission among the S&P 500 and commodity markets. The past shocks and volatility of the S&P 500 strongly influenced the oil and gold markets. This study finds that the highest conditional correlations are between the S&P 500 and gold index and the S&P 500 and WTI index. We also analyze the optimal weights and hedge ratios for commodities/S&P 500 portfolio holdings using the estimates for each index. Overall, our findings illustrate several important implications for portfolio hedgers for making optimal portfolio allocations, engaging in risk management and forecasting future volatility in equity and commodity markets. |
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