On the correlation between commodity and equity returns

Abstract

In this paper, we investigate the correlation between various commodity and equity markets from different countries during the period of the 2000s. We used weekly data to avoid the problem with the differenced time between the markets. We applied the dynamic conditional correlation methodology and ran an OLS estimation with two shock dummies in order to examine the hypothesis that the correlation must be negative during shock periods, as long as the safe heaven hypothesis. Our main findings supports that the correlation between commodity and equity markets tend to be negative during the two crisis, but after the financial crisis of 2008 the correlation seems to be positive due to the financialization of the economy.