Time - Varying Correlations, Causality, and Volatility Linkages of Indian Commodity and Equity Markets : Evidence from DCC - GARCH

Authors

  •   Swamy Perumandla Research Scholar (Ph.D.), School of Management, National Institute of Technology Warangal (NIT-W), Warangal, Telangana - 506 004
  •   Padma Kurisetti Associate Professor, School of Management, National Institute of Technology Warangal (NIT-W), Warangal, Telangana - 506 004

DOI:

https://doi.org/10.17010/ijf/2018/v12i9/131558

Keywords:

Time-Varying Correlations

, Causality, Volatility, Indian Commodity and Equity Markets, Portfolio Risk Management, Dynamic Correlations,

JEL Classification

, C32, C58, C61, G11, G20

Paper Submission Date

, April 29, 2018, Paper sent back for Revision, July 14, Paper Acceptance Date, August 23, 2018

Abstract

This empirical study explored and examined the dynamic conditional correlations, causality, and volatility linkages between the commodity and equity markets in India. In this study, we utilized the DCC-GARCH framework. The symmetric and asymmetric versions of DCC-GARCH, DCC-GJR GARCH, and DCC-EGARCH were used. Our study incorporated the major Indian equity market indices, BSE Sensex and Nifty 50 and commodity market indices, MCX Comdex and Dhaanya. Our results revealed that a mixed portfolio of commodity - equity had low and negative correlations compared to only equity or only commodity portfolios. We deployed the Granger causality test which indicated the short term integration of returns among the markets. We found a bidirectional causal relation between BSE Sensex and Nifty 50 indices. However, we noticed unidirectional causality between MCX Comdex index to Dhaanya index and Dhaanya to Nifty 50 index. The empirical evidence obtained from this study will be useful for the institutional investors, policymakers, investors, and government while framing strategies for portfolio risk diversification and hedging.

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Published

2018-09-11

How to Cite

Perumandla, S., & Kurisetti, P. (2018). Time - Varying Correlations, Causality, and Volatility Linkages of Indian Commodity and Equity Markets : Evidence from DCC - GARCH. Indian Journal of Finance, 12(9), 21–40. https://doi.org/10.17010/ijf/2018/v12i9/131558

Issue

Volume 12, Issue 9, September 2018

Section

Articles
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