Dependence of stock and commodity futures markets in China: Implications for portfolio investment |
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| Institution: | 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. Hirao School of Management, Konan University, 8-33 Takamatsu, Nishinomiya, Hyogo 663-8204, Japan;2. Faculty of Economics, Osaka Gakuin University, 2-36-1 Kishibeminami, Suita Osaka 564-8511, Japan;3. Faculty of Economics, Shiga University, 1-1-1 Banba, Hikone, Shiga 522-8522, Japan;1. Department of Finance and Investment, College of Economics and Administrative Sciences, Al Imam Mohammad Ibn Saud Islamic University (IMSIU), P.O. Box 5701, Riyadh, Saudi Arabia;2. Department of Finance and Accounting, University of Tunis El Manar, B.P. 248, C.P. 2092 Tunis Cedex, Tunisia;3. Lebow College of Business, Drexel University, Philadelphia, PA 19104-2875, United States;4. IPAG Business School, Paris, France;5. Department of Business Administration, Pusan National University, Busan 609-735, Republic of Korea |
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| Abstract: | We examine the recent trends in dependence structure between the fast-growing commodity markets and the stock markets in China. We address this issue by using copula functions that allow for measuring both average and tail dependence. Our results provide evidence of low and positive correlations between these markets, suggesting that commodity futures are a desirable asset class for portfolio diversification. By comparing the market risks of alternative portfolio strategies, we show that Chinese investors can take advantage of commodity futures during different times to realize risk diversification and downside risk reduction benefits. |
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