TITLE:
Financialisation Impacting Diversification? Evidence from Indian Equity & Commodity Markets
AUTHORS:
Siddula Narsimhulu, D. Satish, S. V. Satyanarayana
KEYWORDS:
Diversification, Financialisation, Impulse Response Function, Commodities, Recession, Comdex, Nifty
JOURNAL NAME:
Theoretical Economics Letters,
Vol.6 No.5,
September
6,
2016
ABSTRACT: Investors are constantly looking at diversification
of risks by combining equities with other assets in their portfolio. Apart from
fixed income securities and real estate related instruments, commodities are
also being increasingly used as a portfolio diversification strategy. But the
overwhelming presence of financial institutions and funds in the commodity
markets has resulted in financialisation of commodity markets leading to a
greater correlation between equities and commodities especially during
recession. This has lead to a reduction in diversification benefits. The paper
attempts to study the diversification benefits of investing both in Indian
commodities and equities markets in different economic environments using VAR
Impulse Response Functions with an aim to find out whether financialization
exists. The research found that there was absence of interdependence between
the Indian equity and commodities markets which offered a good opportunity for
diversification. Also the equities market and
commodities market during recession were totally decoupled which showed
that the financialization was not present in Indian commodities market and
there was a greater scope for diversification during the recession.