Financialization, crisis and commodity correlation dynamics

Financial Management Association
Publication Type:
Conference Proceeding
Financial Management Association 2010 Meetings, 2010, pp. 1 - 47
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We study conditional volatility and correlation dynamics for returns to commodity fu- tures, stocks and bonds, from May 1990-July 2009 using DSTCC- GARCH. The models allow correlation to vary smoothly between extreme states via transition functions. Expected stock volatility (VIX) and money manager open interest in futures markets are relevant transition variables. Results show increasing integration between commodity futures and stocks: com- modity returns volatility is predicted by common factors but also by .nancial positions. We observe higher and more variable correlations between commodity futures and stock returns from mid-sample, with many series showing a structural break in the conditional correlation processes from the late 1990s.
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