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

Walid Mensi, Makram Beljid, Adel Boubaker, Shunsuke Managi

Research output: Contribution to journalArticle

143 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)15-22
Number of pages8
JournalEconomic Modelling
Volume32
Issue number1
DOIs
Publication statusPublished - May 1 2013

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Stock market
Volatility spillover
Food
Energy
Commodity markets
Volatility transmission
Commodity prices
Conditional correlation
Oil
GARCH model
Risk management
Equity markets
Traders
Commodities
Transmission mechanism
Hedge ratio
Managers
Government
Portfolio allocation
Stock exchange

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

Correlations and volatility spillovers across commodity and stock markets : Linking energies, food, and gold. / Mensi, Walid; Beljid, Makram; Boubaker, Adel; Managi, Shunsuke.

In: Economic Modelling, Vol. 32, No. 1, 01.05.2013, p. 15-22.

Research output: Contribution to journalArticle

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