PT - JOURNAL ARTICLE AU - David P. Simon TI - A Conditional Assessment of the Relationships<br/>Between Commodity and Equity Indexes AID - 10.3905/jai.2013.16.2.030 DP - 2013 Sep 30 TA - The Journal of Alternative Investments PG - 30--51 VI - 16 IP - 2 4099 - https://pm-research.com/content/16/2/30.short 4100 - https://pm-research.com/content/16/2/30.full AB - This study models the conditional relationships between the Goldman Sachs Total Return Commodity Index and Sub-Indexes and the S&amp;P 500 index from January 1991 through June 2011 within a bivariate GARCH framework that uses instruments to model time-varying conditional correlations. The results indicate the presence of important spillovers between the conditional means and volatilities of commodity and equity index returns. The findings also indicate that conditional correlations increase from roughly zero to about 0.4 during the sample period, consistent with an increased integration of commodity and equity markets. The results also indicate that conditional correlations rise when the conditional volatility of equity returns increases and when business cycle conditions deteriorate. The greater integration of these markets is also reflected in the increase of conditional betas from around zero to roughly 0.6 over the sample period. Overall, the results indicate that while the diversification benefits of commodities diminished over the sample period, the estimated conditional correlations remain low enough for commodities to provide meaningful diversification benefits to equity investors.TOPICS: Commodities, security analysis and valuation, mutual funds/passive investing/indexing, statistical methods