Global Equity-Commodity Market Correlations: Financial Crises and Broken Trends

50 Pages Posted: 16 Jan 2013

See all articles by Xiaoming Li

Xiaoming Li

Massey University - School of Economics and Finance (Albany)

Bing Zhang

Nanjing University - School of Management and Engineering

Date Written: January 17, 2013

Abstract

We show 90 equity-commodity market correlations around the world have fluctuated about their respective broken trends since the early 1990s. Each of past eight major financial crises has precipitated breaks in the levels/slopes of some correlation trends, and each correlation trend has been broken by at least one of the eight crises. Recent financial crises display greater and wider trend-breaking impacts than early financial crises, notably in a way of uplifting the trends drastically. Most correlation trends exhibit positive slopes throughout, and some over the late sample period. Our results constitute compelling evidence that high equity-commodity market correlations can be a long-run phenomenon and will persist until next, yet rare, downward trend-breaking shocks originate.

Keywords: commodity index, equity index, correlation trend, financial crisis, structural break

JEL Classification: G01, G11, C22

Suggested Citation

Li, Xiaoming and Zhang, Bing, Global Equity-Commodity Market Correlations: Financial Crises and Broken Trends (January 17, 2013). Available at SSRN: https://ssrn.com/abstract=2201260 or http://dx.doi.org/10.2139/ssrn.2201260

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

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