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

Michael Graham, Jarno Kiviaho and Jussi Nikkinen

Quantitative Finance, 2013, vol. 13, issue 4, 583-592

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.

Date: 2013
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Citations: View citations in EconPapers (26)

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DOI: 10.1080/14697688.2013.768773

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