Unconventional monetary policy and financialization of commodities |
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| Institution: | 1. Department of Finance, Universiti Tunku Abdul Rahman, Jalan Universiti, Malaysia;2. Department of Economics and Administration, Universiti Malaya, Malaysia;3. Department of Econometrics and Business Statistics, Monash University, Australia;4. Finance Discipline Group, University of Technology, Sydney, Australia;5. School of Economics and Finance, Massey University, New Zealand;1. Middle East Technical University, Department of Business Administration, 06531 Ankara, Turkey;2. Yıldırım Beyazıt University, Department of Management, Esenboğa Külliyesi, Esenboğa, 06970 Ankara, Turkey;3. Middle East Technical University, Department of Earth System Science, 06531 Ankara, Turkey |
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| Abstract: | Our paper has two stages of analysis. First of all, we examine whether volatility spillover between US equity and commodity markets has significantly changed with the heavy influx of index traders in commodity derivatives markets, which is a phenomenon referred to as financialization. Given that previous findings show institutional traders enter into commodity markets at high liquidity episodes, in the second stage of our analysis, we investigate the particular impact of US quantitative easing policy on spillover between commodity and US stocks. Our results indicate that during financialization period, spillover from stocks to commodities have significantly increased for almost all commodities. More importantly, we show that quantitative easing is one of the underlying reasons for increasing volatility spillover between markets. Including interest rate, currency factors or default spread does not diminish the explicit role of quantitative easing on spillovers. |
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| Keywords: | Institutional traders Volatility spillover Financialization Stock markets Quantitative easing |
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