An empirical examination of correlation dynamics between commodity and equity derivative indices: evidence from India using DCC-GARCH models
by Perumandla Swamy; Kurisetti Padma
Afro-Asian J. of Finance and Accounting (AAJFA), Vol. 10, No. 2, 2020

Abstract: This empirical study investigates the time-varying co-movements and volatility linkages between equity-commodity indices and inter-commodity indices. This paper deploys DCC-GARCH framework. Three versions of GARCH namely standard, threshold and exponential with both symmetric and asymmetric versions of dynamic conditional correlations (DCC) have been used. This study considers equity index Nifty 50, non-agricultural commodity indices MCX Energy and MCX Metal along with agricultural commodity indices Dhaanya and MCX Agri. Our results revealed that the combined portfolio of commodities-equity has low or negative correlations, which provide better diversification property rather than a portfolio without commodities. However, we notice a steep decline in time-varying correlations of equity with non-agricultural commodity portfolio since 2013. The mixed portfolio of the agricultural commodity with non-agricultural commodity can also offer diversifying benefits. We found high volatility shifts in time-varying co-movements of Nifty 50-MCX Agri pair. On the other hand, we observed an increasing trend in the co-movements of Nifty 50-Dhaanya, it indicates the interdependency of these two markets. Non-agricultural commodity pair (MCX Energy-MCX Metal) and agricultural commodity pair (MCX Agri-Dhaanya) fail to offer better-diversifying properties. This study provides an essential insight to policymakers, portfolio managers, domestic and international investors, risk analysts and financial researchers in an emerging market.

Online publication date: Thu, 02-Apr-2020

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

 
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the Afro-Asian J. of Finance and Accounting (AAJFA):
Login with your Inderscience username and password:

Username:        Password:          Forgotten your password?

Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com