Stock–commodity correlations, optimal hedging, and climate risks

Demiralay, S ORCID: https://orcid.org/0000-0003-2543-7914, Gencer, HG and Brauneis, A ORCID: https://orcid.org/0000-0001-6965-5492, 2025. Stock–commodity correlations, optimal hedging, and climate risks. Journal of Futures Markets. ISSN 0270-7314

Text 2485731_Demiralay.pdf - Post-print Full-text access embargoed until 20 July 2027. Download (2MB)

Abstract

Despite the growing importance of integrating climate risks into financial decision-making, there has been limited research on how these risks affect stock–commodity correlations and the optimal hedging performance of commodities. Using four novel climate risk measures related to the US climate policy, international summits, global warming, and natural disasters, we explore the impact of climate risks on conditional correlations between commodity futures and equities. Our results reveal that higher transition risks (US climate policy and international summits) are associated with increased correlations, while higher physical risks (natural disasters and global warming) drive correlations lower in most cases. We also find that the interaction of climate risks with macro factors can exert significant influences on the time-varying correlations. During periods of extremely high climate risk, we generally observe higher hedging costs, reduced portfolio allocations to commodities, and lower hedging effectiveness compared to periods of extremely low climate risk.

Item Type:	Journal article
Publication Title:	Journal of Futures Markets
Creators:	Demiralay, S., Gencer, H.G. and Brauneis, A.
Publisher:	Wiley
Date:	20 July 2025
ISSN:	0270-7314
Identifiers:	Number Type 10.1002/fut.70014 DOI 2485731 Other
Rights:	This is the peer reviewed version of the following article: Demiralay, S, Gencer, HG and Brauneis, A, 2025. Stock–commodity correlations, optimal hedging, and climate risks. Journal of Futures Markets, which has been published in final form at https://doi.org/10.1002/fut.70014. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.
Divisions:	Schools > Nottingham Business School
Record created by:	Jonathan Gallacher
Date Added:	26 Aug 2025 10:03
Last Modified:	26 Aug 2025 10:03
URI:	https://irep.ntu.ac.uk/id/eprint/54251

Actions (login required)

Edit View

Statistics

Views

Downloads