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Short-term and long-term dependencies of the S&P 500 index and commodity prices

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  • Michael Graham
  • Jarno Kiviaho
  • Jussi Nikkinen

Abstract

We utilize wavelet coherency methodology with simulated confidence bounds to examine the short-term and long-term dependencies of the returns for S&P 500 and the S&P GSCI-super-® commodity index. Our results indicate no evidence of co-movement between S&P 500 total return and the S&P GSCI-super-® commodity index total return in the short term, thereby suggesting diversification gains for equity investors. Importantly, this finding encompasses the onset of the current financial crisis. However, long-term diversification benefits, particularly after the onset of the recent financial crisis, are limited. We find, moreover, no consistent evidence of co-movements between S&P 500 and 10 individual sub-indexes of the S&P GSCI-super-® commodity index. Of particular importance, we report weak co-movement of returns between S&P 500 and S&P GSCI-super-® Precious Metals total return and S&P 500 and S&P GSCI-super-® Softs at all frequencies, implying significant diversification gains both for short-term and long-term investors.

Suggested Citation

  • Michael Graham & Jarno Kiviaho & Jussi Nikkinen, 2013. "Short-term and long-term dependencies of the S&P 500 index and commodity prices," Quantitative Finance, Taylor & Francis Journals, vol. 13(4), pages 583-592, March.
  • Handle: RePEc:taf:quantf:v:13:y:2013:i:4:p:583-592
    DOI: 10.1080/14697688.2013.768773
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    6. Graham, Michael & Peltomäki, Jarkko & Piljak, Vanja, 2016. "Global economic activity as an explicator of emerging market equity returns," Research in International Business and Finance, Elsevier, vol. 36(C), pages 424-435.
    7. Bing-Yue Liu & Qiang Ji & Ying Fan, 2017. "A new time-varying optimal copula model identifying the dependence across markets," Quantitative Finance, Taylor & Francis Journals, vol. 17(3), pages 437-453, March.
    8. Urom, Christian & Anochiwa, Lasbrey & Yuni, Denis & Idume, Gabriel, 2019. "Asymmetric linkages among precious metals, global equity and bond yields: The role of volatility and business cycle factors," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).
    9. He, Kaijian & Xu, Yang & Zou, Yingchao & Tang, Ling, 2015. "Electricity price forecasts using a Curvelet denoising based approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 425(C), pages 1-9.
    10. Xiaojie Xu, 2018. "Causal structure among US corn futures and regional cash prices in the time and frequency domain," Journal of Applied Statistics, Taylor & Francis Journals, vol. 45(13), pages 2455-2480, October.
    11. Wen, Shaobo & An, Haizhong & Huang, Shupei & Liu, Xueyong, 2019. "Dynamic impact of China's stock market on the international commodity market," Resources Policy, Elsevier, vol. 61(C), pages 564-571.
    12. Dar, Arif Billah & Bhanja, Niyati & Paul, Manas, 2019. "Do gold mining stocks behave like gold or equities? Evidence from the UK and the US," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 369-384.
    13. Lin, Fu-Lai & Yang, Sheng-Yung & Marsh, Terry & Chen, Yu-Fen, 2018. "Stock and bond return relations and stock market uncertainty: Evidence from wavelet analysis," International Review of Economics & Finance, Elsevier, vol. 55(C), pages 285-294.
    14. de Boyrie Maria E. & Pavlova Ivelina, 2018. "Equities and Commodities Comovements: Evidence from Emerging Markets," Global Economy Journal, De Gruyter, vol. 18(3), pages 1-14, September.
    15. Nguyen, Duc Khuong & Topaloglou, Nikolas & Walther, Thomas, 2020. "Asset Classes and Portfolio Diversification: Evidence from a Stochastic Spanning Approach," MPRA Paper 103870, University Library of Munich, Germany.

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