Financialization, crisis and commodity correlation dynamics
Silvennoinen, Annastiina & Thorp, Susan (2013) Financialization, crisis and commodity correlation dynamics. Journal of International Financial Markets, Institutions and Money, 24, pp. 42-65.
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 (DSTCC–GARCH) 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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|Item Type:||Journal Article|
|Keywords:||Smooth transition, Financial integration, Global financial crisis|
|Divisions:||Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
|Deposited On:||11 Jan 2013 04:55|
|Last Modified:||12 Jun 2013 15:26|
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