Financialization, crisis and commodity correlation dynamics

Silvennoinen, A; Thorp, SJ

Financialization, crisis and commodity correlation dynamics

Silvennoinen, A Thorp, SJ

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Publisher:: Elsevier
Publication Type:: Journal Article
Citation:: Journal of International Financial Markets, Institutions & Money, 2013, 24 pp. 42 - 65
Issue Date:: 2013-01

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Field	Value	Language
dc.contributor.author	Silvennoinen, A	en_US
dc.contributor.author	Thorp, SJ	en_US
dc.date.issued	2013-01	en_US
dc.identifier.citation	Journal of International Financial Markets, Institutions & Money, 2013, 24 pp. 42 - 65	en_US
dc.identifier.issn	1042-4431	en_US
dc.identifier.uri	http://hdl.handle.net/10453/23447
dc.description.abstract	Stronger investor interest in commodities may create closer integration with conventional asset markets. We estimate sudden and gradual changes in correlation between stocks, bonds and commodity futures returns driven by observable financial variables and time, using double smooth transition conditional correlation (DSTCCGARCH) models. Most correlations begin the 1990s near zero but closer integration emerges around the early 2000s and reaches peaks during the recent crisis. Diversification benefits to investors across equity, bond and stock markets were significantly reduced. Increases in VIX and financial traders short open interest raise futures returns volatility for many commodities. Higher VIX also increases commodity returns correlation with equity returns for about half the pairs, indicating closer integration.	en_US
dc.publisher	Elsevier	en_US
dc.relation.ispartof	Journal of International Financial Markets, Institutions & Money	en_US
dc.relation.isbasedon	10.1016/j.intfin.2012.11.007	en_US
dc.subject.classification	Finance	en_US
dc.title	Financialization, crisis and commodity correlation dynamics	en_US
dc.type	Journal Article
utslib.citation.volume	24	en_US
utslib.for	150202 Financial Econometrics	en_US
utslib.for	140207 Financial Economics	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	1402 Applied Economics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Strength - CENSOC - Study of Choice
utslib.copyright.status	closed_access
pubs.consider-herdc	true	en_US
pubs.volume	24	en_US

Abstract:

Stronger investor interest in commodities may create closer integration with conventional asset markets. We estimate sudden and gradual changes in correlation between stocks, bonds and commodity futures returns driven by observable financial variables and time, using double smooth transition conditional correlation (DSTCCGARCH) models. Most correlations begin the 1990s near zero but closer integration emerges around the early 2000s and reaches peaks during the recent crisis. Diversification benefits to investors across equity, bond and stock markets were significantly reduced. Increases in VIX and financial traders short open interest raise futures returns volatility for many commodities. Higher VIX also increases commodity returns correlation with equity returns for about half the pairs, indicating closer integration.

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http://hdl.handle.net/10453/23447