Research on World Agricultural Economy

Measuring the Correlations between Stock Market Returns and Commodity Returns in the United States Using GARCH‑M Models

Wisam H. Ali aliAl‑Anezi

Department of Economics, College of Administration and Economics, University of Anbar, Ramadi 31001, Iraq

Ali Y. Abdullah Al-Joaani

Al‑Nisour University College, Baghdad 10011, Iraq

Faisal Ghazi Faisal

Department of Finance and Banking, Al‑Idrisi University College, Ramadi 31001, Iraqa

Bha Aldan Abdulsattar Faraj

Department of Finance and Banking Sciences, College of Financial and Administrative Sciences, University of Al Maarif, Ramadi 31001, Iraq

Abdulrazaq Shabeeb

Department of Economics, College of Administration and Economics, University of Anbar, Ramadi 31001, Iraq

DOI: https://doi.org/10.36956/rwae.v6i2.1638

Received: 30 December 2024 | Revised: 5 February 2025 | Accepted: 24 February 2025 | Published Online: 24 April 2025

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Abstract

The research aims to measure the correlations between stock markets returns (Returns of the Standard & Poor's 500 Index (RS&P500) and Returns of the Dow Jones Index (RDJI) and commodity markets returns (Returns of gold (RPG), Returns of U.S. corn (RC) and Returns of soybeans (RS)) for the United States of America, using daily data for the period from January 2, 2015, to November 22, 2024, and by employing the GARCH-M model. The results indicate the returns from financial markets and agricultural commodity markets tend to move in the same direction but at different rates, and that investing in the gold market is considered a safe haven for investment in the financial markets in the United States, while investing in agricultural commodity markets does not reduce risks in the financial markets but rather increases them, as they are positively correlated. The study also found that indirect effects were mostly driven by short time horizons, followed by medium and long time horizons, which highlights the importance of considering the evolving nature of correlations when making asset allocation decisions, as well as their importance for investors, portfolio managers, and government departments (policymakers) with regard to managing risks.

Keywords: Market Volatility; Dynamic Correlations; GARCH‑M; DCC‑GARCH; CCC‑GARCH; Portfolio Diversification

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