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Article

Commodities and Equities: Ever a “Market of One”?

Bahattin Büyüksahin, Michael S Haigh and Michel A Robe
The Journal of Alternative Investments Winter 2010, 12 (3) 76-95; DOI: https://doi.org/10.3905/JAI.2010.12.3.076
Bahattin Büyüksahin
is an economist at the U.S. Commodity Futures Trading Commission in Washington, DC.
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  • For correspondence: bbuyuksahin@cftc.gov
Michael S Haigh
is a managing director at K2 Advisors in Stamford, CT.
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  • For correspondence: mhaigh@k2advisors.com
Michel A Robe
is an associate professor of finance at the Kogod School of Business at American University and a consulting senior economist at the U.S. Commodity Futures Trading Commission in Washington, DC.
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  • For correspondence: mrobe@american.edu
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Abstract

Amid the rise in commodity investing that started in 2003, many have asked whether commodities now move more in sync with traditional financial assets. Using daily, weekly and monthly data over 18 years, this article provides evidence largely to the contrary. First, dynamic conditional correlation and recursive co-integration techniques are applied to the prices of, and the returns on, key investable commodity and U.S. equity indices. Compared to the 1991–2002 period, both short- and long-term relationships between passive commodity and equity investments are generally weaker after 2003. Even though the correlations between equity and commodity returns increased sharply in the fall of 2008, during a time of extraordinary economic and financial turbulence, they remained lower than their peaks in the previous decade. Second, the co-movements between equity and commodity returns in periods of extreme returns are analyzed. There is little evidence of a secular increase in spillovers from equity to commodity markets during extreme events. Overall, the results suggest that while commodities provide substantial diversification benefits to passive equity investors, those benefits are weaker precisely when they are needed most.

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The Journal of Alternative Investments: 12 (3)
The Journal of Alternative Investments
Vol. 12, Issue 3
Winter 2010
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Commodities and Equities: Ever a “Market of One”?
Bahattin Büyüksahin, Michael S Haigh, Michel A Robe
The Journal of Alternative Investments Dec 2009, 12 (3) 76-95; DOI: 10.3905/JAI.2010.12.3.076

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Commodities and Equities: Ever a “Market of One”?
Bahattin Büyüksahin, Michael S Haigh, Michel A Robe
The Journal of Alternative Investments Dec 2009, 12 (3) 76-95; DOI: 10.3905/JAI.2010.12.3.076
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  • Article
    • Abstract
    • RELATED WORK
    • DATA AND DESCRIPTIVE STATISTICS
    • SHORT-TERM CO-MOVEMENTS
    • LONG-TERM CO-MOVEMENTS
    • EXTREME EVENTS
    • CONCLUSIONS
    • ENDNOTES
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