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Linkage Between Indian Stock and Commodity Market Under Structural Breaks: A Study Through DCC GARCH Model

Journal of IMS Group

Volume 16 Issue 1

Published: 2019
Author(s) Name: Nikhil Kaushik | Author(s) Affiliation: Assistant Professor, Institute of Management Studies Ghaziabad, Uttar Pradesh
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Abstract

The study investigates the dynamic relationship among Indian stock market and commodity market using multivariate GARCH for the period from August 1, 2006 to December 30, 2016. The structural breaks are identified based on the evolution of S&P BSE Sensex returns using Bai and Perron structural break test. The whole study period is divided into six sub-periods, three bullish stock market period and three bearish stock market period. The DCC-GARCH model is used to investigate time-varying correlation among series. The results indicate that the correlation between Indian stock market and commodities are highly volatile and persistent during economic crisis periods 2008 and 2015. Gold, as well as silver, are safe haven during this turmoil as they show negative relation with stock in financial crisis while crude oil movements are aligned with the stock market. Whereas, aluminium does not reflect any influence in bearish and bullish stock market period.

Keywords: Commodity Market, DCC-GARCH, Indian Stock Market and Structural Breaks.

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