Commodities and Equities: 'A Market of One'?

Abstract

Amidst a sharp rise in commodity investing, many have asked whether commodities nowadays move in sync with traditional financial assets. We provide evidence that challenges this idea. Using dynamic correlation and recursive cointegration techniques, we find that the relation between the returns on investable commodity and U.S. equity indices has not changed significantly in the last fifteen years. We also find no evidence of any secular increase in co-movement between the returns on commodity and equity investments during periods of extreme returns.