The Volatility Behavior and Dependence Structure of Commodity Futures and Stocks
University of St. Gallen - Swiss Institute of Banking and Finance
Lund University - Department of Economics
July 18, 2012
Forthcoming, Journal of Futures Markets
This paper finds substantial risk diversification potential between certain commodity groups and stocks by exploring the dependence between their patterns of regime switching. None of the commodity groups share a common volatility regime with stocks, nor are the regime switching patterns of grains, industrials, metals, or softs, dependent on that of stocks. Simultaneous volatile regimes of commodity futures and stocks tend to be infrequent and short-lived. In addition, in spite of financial contagion, animal products, grains, and softs typically demonstrate very low correlations with stocks even in simultaneous volatile regimes.
Number of Pages in PDF File: 14
Keywords: stocks, commodity futures, regime switching, volatility, correlation, diversification
JEL Classification: C22, G11, G12, G13Accepted Paper Series
Date posted: June 26, 2011 ; Last revised: November 6, 2012
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