Modeling Time-Varying Correlations in Volatility Between BRICS and Commodity Markets |
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| Authors: | Sang Hoon Kang Ron McIver |
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| Institution: | 1. Department of Business Administration, Pusan National University, Busan, Republic of Korea;2. Centre for Applied Financial Studies (CAFS), School of Commerce, UniSA Business School, University of South Australia, Adelaide, SA, Australia |
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| Abstract: | This article investigates the asymmetric and long memory volatility properties and dynamic conditional correlations (DCCs) between Brazilian, Russian, Indian, Chinese, and South African (BRICS) stock markets and commodity (gold and oil) futures markets, using the trivariate DCC-fractionally integrated asymmetric power autoregressive conditional heteroskedasticity (FIAPARCH) model. We identify significant asymmetric and long memory volatility properties and DCCs for pairs of BRICS stock and commodity markets, and variability in DCCs and Markov Switching regimes during economic and financial crises. Finally, we analyze optimal portfolio weights and time-varying hedge ratios, demonstrating the importance of overweighting optimal portfolios between BRICS stock and commodity assets. |
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| Keywords: | BRICS stock markets volatility structural breaks time-varying hedge ratios multivariate DCC-FIAPARCH model |
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