Download this Paper Open PDF in Browser

Correlation in Commodity Futures and Equity Markets Around the World: Long-Run Trend and Short-Run Fluctuation

41 Pages Posted: 26 Feb 2012  

Xiaoming Li

Massey University - School of Economics and Finance (Albany)

Bing Zhang

Nanjing University - School of Management and Engineering

Zhijie Du

affiliation not provided to SSRN

Date Written: November 16, 2011

Abstract

Addressing the view that recent hikes in the commodity-equity correlation will only be temporary, this paper differentiates itself from previous studies in two aspects: It examines the long-run trends and the short-run fluctuations of the commodity-equity correlation, and it does so to indices from 45 equity markets. Of them, 32 demonstrate an upward long-run trend in their correlations with the commodity futures market throughout the last decade, and 43 have had their correlation trends upswing sharply during the recent financial/economic turmoil. Conditional correlations of 39 equity markets with the commodity futures market move towards or above their long-run trends when volatilities of these equity markets increase. Our results constitute compelling evidence that the attenuating diversification benefits of commodity futures are a long-run and world-wide phenomenon.

Keywords: Commodity futures, Equity, Conditional correlation, Long-run trend

JEL Classification: G01, G11, C22

Suggested Citation

Li, Xiaoming and Zhang, Bing and Du, Zhijie, Correlation in Commodity Futures and Equity Markets Around the World: Long-Run Trend and Short-Run Fluctuation (November 16, 2011). Available at SSRN: https://ssrn.com/abstract=2011178 or http://dx.doi.org/10.2139/ssrn.2011178

Xiaoming Li (Contact Author)

Massey University - School of Economics and Finance (Albany) ( email )

Private Bag 102904
North Shore
Auckland, 0745
New Zealand
+64 9 4140800 ext. 43177 (Phone)
+64 9 441 8177 (Fax)

Bing Zhang

Nanjing University - School of Management and Engineering ( email )

Nanjing, Jiangsu 210093
China

Zhijie Du

affiliation not provided to SSRN ( email )

Paper statistics

Downloads
368
Rank
66,728
Abstract Views
1,967