Analysis of Linkage Dynamics between Commodity and Stock Markets in India using entropy theory

Abstract

The temporal relationship between the commodities market and the stock market has a lot of implications for not only the participants of the markets but also for the policy makers and the producers of the commodities and, in the case of developing nations, for the economy as a whole. This relationship may be studied using various methods and by identifying lead - lag relationship between the values of representative indices of the markets. In this paper, the dynamics of such information transfer among the commodities spot, the commodities derivatives, the stock and the stock derivatives markets in India are studied using the information theoretic concept of entropy, which captures non-linear dynamic relationship also.