RT Journal Article SR Electronic T1 Covariance Patterns of the Commodity
and Equity Markets: A Recent Surprise JF The Journal of Index Investing FD Institutional Investor Journals SP 33 OP 37 DO 10.3905/jii.2014.5.1.033 VO 5 IS 1 A1 Vichet Sum YR 2014 UL https://pm-research.com/content/5/1/33.abstract 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