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How do bond, equity and commodity cycles interact?

Author

Listed:
  • Narayan, Paresh Kumar
  • Thuraisamy, Kannan S.
  • Wagner, Niklas F.

Abstract

We address bond, equity, gold as well as oil markets, and examine their lagged interactions including market volatility and consumer prices. Apart from considering returns, we also address the cyclic component of price levels. Study of the monthly lag structure during January 1950 to June 2015 reveals: (i) U.S. cycles and returns show a consistent pattern of predictability, (ii) the bond-equity interaction has self-enforcing and dampening dynamic components, (iii) equity prices negatively react to shocks in uncertainty and slowly build a positive risk premium, (iv) lagged cross-market pricing transmission occurs from gold to bonds to oil and finally to inflation.

Suggested Citation

  • Narayan, Paresh Kumar & Thuraisamy, Kannan S. & Wagner, Niklas F., 2017. "How do bond, equity and commodity cycles interact?," Finance Research Letters, Elsevier, vol. 21(C), pages 151-156.
  • Handle: RePEc:eee:finlet:v:21:y:2017:i:c:p:151-156
    DOI: 10.1016/j.frl.2016.11.005
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    References listed on IDEAS

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    1. Hoang, Thi Hong Van & Lahiani, Amine & Heller, David, 2016. "Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach," Economic Modelling, Elsevier, vol. 54(C), pages 54-66.
    2. Cheung, C. Sherman & Miu, Peter, 2010. "Diversification benefits of commodity futures," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(5), pages 451-474, December.
    3. Edwards, Sebastian & Biscarri, Javier Gomez & Perez de Gracia, Fernando, 2003. "Stock market cycles, financial liberalization and volatility," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 925-955, December.
    4. Allen Sinai, 1992. "Financial and Real Business Cycles," Eastern Economic Journal, Eastern Economic Association, vol. 18(1), pages 1-54, Winter.
    5. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    6. Bekaert, Geert & Hodrick, Robert J, 1992. " Characterizing Predictable Components in Excess Returns on Equity and Foreign Exchange Markets," Journal of Finance, American Finance Association, vol. 47(2), pages 467-509, June.
    7. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
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    Cited by:

    1. repec:eee:intfin:v:52:y:2018:i:c:p:114-133 is not listed on IDEAS
    2. repec:eee:intfin:v:51:y:2017:i:c:p:133-141 is not listed on IDEAS

    More about this item

    Keywords

    Asset pricing; Cross-market dependence; Granger causality; Financial cycles; Time-varying risk premium; Commodity markets; Gold; Oil; Market volatility;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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