Commodities and Stock Investment

This study is a multivariate analysis of commodities and stockinvestment in a newly established market scenario. Return distribution asymmetry isexamined with higher order movements. Skewness in commodity future’s return is largelyinsignificant, whereas kurtosis is highly significant for both stock and commodityfuture contracts. Correlation analysis is done with Pearson’s and Kendall’s taumeasures. Commodities provide significant diversification benefits when added in aportfolio of stocks. Compared with stocks, commodity future’s returns show strongercorrelation with unexpected inflation. The volatility is measured throughGlosten-Jagannathan-Runkle - Generalized Autoregressive Conditional Heteroskedasticity(GJR-GARCH) model and reflects that commodities have inverted asymmetric behavior, thatis, more impact from the upward shocks compared with downward. Stocks have asymmetricvolatility, that is, more impact from negative shocks compared with positive. Gold hashighest inverted asymmetric volatility. Tail dependence, measured through Student’s tcopula, shows no combined downside movement. In conclusion, commodity investmentsprovide diversification and inflation protection