Conditional Return Correlations between Gold Futures, Oil Futures, Thai Stock Market and Thai Bond Market
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Abstract
This study aims to examine the conditional returns correlations between commodity futures and traditional asset classes by using the DCC-GARCH model. The variables as a proxy for commodity futures include Gold futures and WTI futures. While the variables as a proxy for traditional assets, comprise equity securities and bonds. Moreover, this study also considers changing the exchange rate as an exogenous variable that is added to the variance equation of the GARCH because the appreciation or depreciation of the Thai baht, causing fluctuations in the prices of all four securities.
The results reveal that the correlation returns correlations between Thai stock market (SET) and WTI futures have a negative relationship over time. The highest value of this conditional correlation is -0.0692, and the lowest value is -0.4911. This can be indicated that WTI Futures have become better diversification tools in equity portfolio management. Besides, the conditional returns correlations between Gold Futures and SET declined in periods of financial market fluctuations. Thus, Gold Futures long position and owning few stocks in the portfolio as the benefits for investors, financial institutions, and fund managers who need to diversification of risk in equity portfolio management in periods of high volatility in the financial market.
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