PT  - JOURNAL ARTICLE
AU  - Vichet Sum
TI  - Covariance Patterns of the Commodity<br/>and Equity Markets: <em>A Recent Surprise</em>
AID  - 10.3905/jii.2014.5.1.033
DP  - 2014 May 31
TA  - The Journal of Index Investing
PG  - 33--37
VI  - 5
IP  - 1
4099  - https://pm-research.com/content/5/1/33.short
4100  - https://pm-research.com/content/5/1/33.full
AB  - This study is designed to dissect the covariance patterns of the returns on the commodity and equity markets. Analyzing monthly return data from 1970M1 to 2013M7, we obtain results showing that returns on the commodity and equity markets co-vary weakly in the opposite direction (r = -0.12) in the 1970s, move together in the same (weakly positive) direction (r = 0.18) in the 1980s, then journey in the slightly opposite (r = -0.08) direction again in the 1980s, and run together in the weakly positive (r = 0.19) direction again in the 2000s. Then comes a surprise: In the past 3½ years (from 2010 to 2013M7), there is a significantly positive surge (r = 0.793) in the covariance between the returns on the commodity and equity markets. The OLS estimates show that return on the stock market can significantly (r 2 = 0.63) explain the return variability of the commodity market in the 2010s, as compared to other periods.TOPICS: Commodities, security analysis and valuation, statistical methods