FEAS RESEARCH E-BULLETIN FEAS RESEARCH E-BULLETIN DECEMBER 2017 | Page 12
Author: Ordu, Beyza Mina
Title: Essays on Empirical Testing of Financialization of Commodities
Supervisor: Assoc. Prof. Dr. Adil Oran
Department: Business Administration
Date: January 2017
Abstract: Over the last decade commodity derivatives market experienced a significant influx of
financial institutions, which is a phenomenon referred to as financialization of commodities. The
main purpose of this thesis is to investigate whether financialization bolstered the connectedness
between US stock and commodity markets. Connectedness can occur in forms of either spillover or
co-movement and hence we analyze each form in two essays. In the first essay, we investigate
volatility spillover between 25 commodity derivatives and US stock markets. Results show that the
spillover between almost all commodity and stock markets increases significantly following the
financialization. Moreover, we find that the net transmitter of volatility is commodity markets
during pre-financialization period, whereas transmitters happen to be stock market after the
financialization. Therefore, we show that commodities do not shield the investor from downside
risk in financial markets, anymore. In the second essay, we examine the explanatory power of
financialization on the increasing correlations between agricultural commodities and stock markets
after 2008. Even though our findings support the argument on financialization; we find that
explanatory power of financialization is highly dependent upon liquidity constraints.
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