The Volatility Behavior and Dependence Structure of Commodity Futures and Stocks

in Journal of Futures Markets (2014), 34(1), 93-101

This study finds substantial risk diversification potential between certain com- modity groups and stocks by exploring the dependence between their patterns of regime switching. None of the commodity ... [more ▼]

This study finds substantial risk diversification potential between certain com- modity 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 demon- strate very low correlations with stocks even in simultaneous volatile regimes. [less ▲]