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Stock return predictability over four centuries: The role of commodity returns

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  • Iyke, Bernard Njindan
  • Ho, Sin-Yu

Abstract

We merge two unique historical datasets on commodity and stock prices covering four centuries and three leading stock markets (Netherlands, UK, and US) to show that, consistent with theoretical predictions, commodity returns can predict stock returns. We show that about 64% and 56% of the commodity returns can predict stock returns in-sample and out-of-sample, respectively. Aggregating commodity returns by market, returns from agriculture, energy, and livestock and meat markets appear to consistently predict stock returns. These results are robust to recessions and expansions.

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  • Iyke, Bernard Njindan & Ho, Sin-Yu, 2021. "Stock return predictability over four centuries: The role of commodity returns," Finance Research Letters, Elsevier, vol. 40(C).
    • Handle: RePEc:eee:finlet:v:40:y:2021:i:c:s1544612320307947
    DOI: 10.1016/j.frl.2020.101711
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    Cited by:

    1. Ayedi Ahmed & Marjène Gana & Stéphane Goutte & Khaled Guesmi, 2023. "Managing Portfolio Risk During the BREXIT Crisis: A Cross-Quantilogram Analysis of Stock Markets and Commodities Across European Countries, the US, and BRICS," Working Papers halshs-04068651, HAL.
    2. Cheng Xin & Kailin Ji & Hao Chang & Yang Li & Ya-Qiong Liu, 2022. "Price Co-Movement between Electrical Equipment and Metal Commodities—A Time-Frequency Analysis," Sustainability, MDPI, vol. 14(20), pages 1-18, October.

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    More about this item

    Keywords

    Stock return predictability; Commodity returns; Four centuries;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • N2 - Economic History - - Financial Markets and Institutions
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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