Measuring the Correlations between Stock Market Returns and Commodity Returns in the United States Using GARCH‑M Models

The research aims to measure the correlations between stock markets returns (Returns of the Standard & Poor's 500 Index (RS&P500) and Returns of the Dow Jones Index (RDJI) and commodity markets returns (Returns of gold (RPG), Returns of U.S. corn (RC) and Returns of soybeans (RS)) for the United States of America, using daily data for the period from January 2, 2015, to November 22, 2024, and by employing the GARCH-M model. The results indicate the returns from financial markets and agricultural commodity markets tend to move in the same direction but at different rates, and that investing in the gold market is considered a safe haven for investment in the financial markets in the United States, while investing in agricultural commodity markets does not reduce risks in the financial markets but rather increases them, as they are positively correlated. The study also found that indirect effects were mostly driven by short time horizons, followed by medium and long time horizons, which highlights the importance of considering the evolving nature of correlations when making asset allocation decisions, as well as their importance for investors, portfolio managers, and government departments (policymakers) with regard to managing risks.