The Baltic Dry Index as a Predictor of Global Stock Returns, Commodity Returns, and Global Economic Activity

52 Pages Posted: 22 Mar 2011

See all articles by Gurdip Bakshi

Gurdip Bakshi

Fox School of Business; Temple University - Fox School of Business and Management

George Panayotov

Hong Kong University of Science & Technology (HKUST)

Georgios Skoulakis

University of Piraeus - Department of Banking and Financial Management

Multiple version iconThere are 2 versions of this paper

Date Written: January 26, 2011

Abstract

The goal of this paper is to show that the growth rate of the Baltic Dry Index (BDI) has predictive ability for a range of stock markets, which is demonstrated through in-sample tests and out-of-sample statistics.

The documented stock return predictability is also of economic significance, as seen by examining the certainty equivalent returns and Sharpe ratios of portfolio strategies that exploit the BDI growth rate. In addition, the BDI growth rate predicts the returns of commodity indexes, and we find some evidence for joint predictability of stock and commodity returns in a system of predictive regressions. Finally, the BDI growth rate predicts the growth in global economic activity, establishing further BDI’s role in revealing a link between the real and financial sectors.

Keywords: Baltic Dry Index, global stock markets, commodity returns, global real economic activity, predictive regressions, out-of-sample statistic, economic significance

JEL Classification: C23, C53, G11, G12, G13, C5, D24, D34

Suggested Citation

Bakshi, Gurdip S. and Bakshi, Gurdip S. and Panayotov, George and Skoulakis, Georgios, The Baltic Dry Index as a Predictor of Global Stock Returns, Commodity Returns, and Global Economic Activity (January 26, 2011). AFA 2012 Chicago Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1787757 or http://dx.doi.org/10.2139/ssrn.1787757

Gurdip S. Bakshi

Fox School of Business ( email )

Department of Finance
Philadelphia, PA 19022
United States
215-204-6117 (Phone)
tuk40718@temple.edu (Fax)

HOME PAGE: http://https://sites.google.com/view/gurdipbakshi1

Temple University - Fox School of Business and Management ( email )

Philadelphia, PA 19122
United States

HOME PAGE: http://https://sites.google.com/view/gurdipbakshi1

George Panayotov

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong
852-2358-5049 (Phone)
852-2358-1749 (Fax)

Georgios Skoulakis (Contact Author)

University of Piraeus - Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

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