RT Journal Article SR Electronic T1 A Conditional Assessment of the Relationships
Between Commodity and Equity Indexes JF The Journal of Alternative Investments FD Institutional Investor Journals SP 30 OP 51 DO 10.3905/jai.2013.16.2.030 VO 16 IS 2 A1 David P. Simon YR 2013 UL https://pm-research.com/content/16/2/30.abstract AB This study models the conditional relationships between the Goldman Sachs Total Return Commodity Index and Sub-Indexes and the S&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