Correlations and volatility spillovers across commodity and stock markets: Linking energies, food, and gold

By Walid Mensi, Makram Beljid, Adel Boubaker, Shunsuke Managi. 2013

537 citations recorded by the source corpus.

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. © 2013 Elsevier B.V.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/36649e0d152bc13e0a8d3c3133ee88240f2fc35d

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Citations in the corpus

Asymmetric spillover and network connectedness between crude oil, gold, and Chinese sector stock markets (2021, background): “Numerous empirical studies have examined the relationships between oil and stock markets (Sadorsky, 1999; Nanadha and Faff, 2008; Park and Ratti, 2008; Bjørnland, 2009; Filis et al., 2011; Mensi et al., 2013; Wang et al., 2013).”
The Interactions among Gold, Oil, and Stock Market: Evidence from S&P500 (2015, background): “Mensi et al. (2013) studied the correlation and volatility transmission across commodities such as gold, oil, and equity market.”
Oil shocks and stock markets: dynamic connectedness under the prism of recent geopolitical and economic unrest (2017, background): “To illustrate this, Mensi et al. (2013) and Arouri et al. (2012) find significant volatility spillover effects between the oil market and the US or the European stock markets, respectively.”
Volatility Spillovers Across Petroleum Markets (2015, background): “These ﬁndings are in line with petroleum’s increasing ﬁnancialization after 2001 as shown in Fratzscher et al. (2013) and the expanding ﬁn ancialization of commodities in general (Mensi et al., 2013; Creti et al., 2013; Dwyer et al., 2011; Vivian and Wohar, 2012).”
The relationship between energy and equity markets: evidence from volatility impulse response functions (2014, methodology): “Thus, the hedge ratio is then 𝛽𝑡 𝑒𝑛𝑒𝑟𝑔𝑦,𝑆&𝑃500 = ℎ𝑡 𝑒𝑛𝑒𝑟𝑔𝑦,𝑆&𝑃500 ℎ𝑡 𝑒𝑛𝑒𝑟𝑔𝑦 However, in contrast to Mensi et al. (2013), we report the time-varying hedge ratios, which reflect changes in the conditional covariance and conditional variances of the series.”
Dynamic spillovers among major energy and cereal commodity prices (2014, methodology): “7 more recent study, Mensi et al. (2013) use the VAR-GARCH model to investigate the return”
Hedging emerging market stock prices with oil, gold, VIX, and bonds: A comparison between DCC, ADCC and GO-GARCH ☆ (2015, unknown): “, 2013; Guesmi and Fattoumi, 2014) or between different commodities (eg. Hammoudeh and Yuan, 2008; Hammoudeh et al., 2011; Creti et al., 2013; Choi and Hammoudeh, 2010; Zhang et al., 2009; Du et al., 2011; Serra, 2011; Serra et al., 2011; Nazlioglu et al., 2013; Mensi et al., 2013; Mensi et al., 201”
Dynamic spillover effects among crude oil, precious metal, and agricultural commodity futures markets (2017, methodology): “These changes have increased the fundamental importance for governments, speculative traders, producers, and consumers, of analysing links between shocks and volatility across these markets (Mensi et al., 2013, 2014).”