A study on interplay of commodity price movements and equity returns in the Indian market

Abstract

This comprehensive study delves into the intricate correlation between fluctuations in commodity prices and equity returns within the Indian market. It highlights the crucial understanding of these dynamics in the context of India's expanding economy and diverse sectors. Aiming to address gaps in existing literature, the research meticulously investigates the performance of specific commodities in the Indian market and their consequential impact on related stocks. Drawing from a diverse range of academic and industry literature, the study references influential works by renowned experts, including Black, Markowitz, Sharpe, Erb, Harvey, and Hamilton. The empirical analysis centres on key financial variables, offering insights into data stationarity, risk-return characteristics, correlation analysis, and Granger causality tests. Key findings emphasize the importance of achieving stationarity through differencing, reveal positive correlations, and present limited evidence of Granger causality. The study concludes by advocating for continuous monitoring and refinement of models for adaptive financial analysis and modelling, emphasizing the necessity for caution when making assumptions about predictive relationships. In summary, this research contributes valuable insights to informed decision-making in financial analysis and modelling, providing practical guidance for the development of adaptive financial models.