Is There a Possibility of Diversification Between Commodities and Ibovespa? Analysis of Volatility Transmission (2000‒2016)

Abstract

In 2002, a commodity prices boom in the international market began concomitantly with the trend of the main stock market index, especially in emerging stock exchanges. In Brazil, specifically, the main stock index (Ibovespa) presents a history of important composition of companies linked to the commodities sector, which suggests a relationship between the commodity prices and the stock market. Thus, the objective of the study was to evaluate the contagion of volatility between the commodity prices and the Ibovespa, through a multivariate GARCH model, to verify the possibility of diversification of investments. The research hypothesized that there is a strong relationship between the commodity prices and the Ibovespa index, with the presence of the contagion effect according to Forbes and Rigobon (2002). The results partially corroborate the hypothesis formulated, since it was possible to observe a strong increase in conditional covariance between the two variables during the international financial crisis. On the other hand, the conditional correlation between the Ibovespa and the commodity prices showed that the relationship between the variables was relatively small in the periods before and after the 2008 crisis, which suggests that concomitant investments in commodities and the Ibovespa constitute a risk diversification strategy.