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Modeling Time-Varying Correlations in Volatility Between BRICS and Commodity Markets

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  • Sang Hoon Kang
  • Ron McIver
  • Seong-Min Yoon
Abstract
This article investigates the asymmetric and long memory volatility properties and dynamic conditional correlations (DCCs) between Brazilian, Russian, Indian, Chinese, and South African (BRICS) stock markets and commodity (gold and oil) futures markets, using the trivariate DCC-fractionally integrated asymmetric power autoregressive conditional heteroskedasticity (FIAPARCH) model. We identify significant asymmetric and long memory volatility properties and DCCs for pairs of BRICS stock and commodity markets, and variability in DCCs and Markov Switching regimes during economic and financial crises. Finally, we analyze optimal portfolio weights and time-varying hedge ratios, demonstrating the importance of overweighting optimal portfolios between BRICS stock and commodity assets.

Suggested Citation

  • Sang Hoon Kang & Ron McIver & Seong-Min Yoon, 2016. "Modeling Time-Varying Correlations in Volatility Between BRICS and Commodity Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(7), pages 1698-1723, July.
    • Handle: RePEc:mes:emfitr:v:52:y:2016:i:7:p:1698-1723
    DOI: 10.1080/1540496X.2016.1143248
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