Stocks, Commodities and Business Cycle Fluctuations ? Seeking the Diversification Benefits
DOI:
https://doi.org/10.12775/EQUIL.2012.029Keywords:
stock and commodity markets, diversification benefits, business cycle fluctuationsAbstract
In this study we empirically verify the diversification potential of different commodity sectors for equity portfolios. We also try to find the explanation of varying cross-sectoral diversification benefits by verifying the relationship between macroeconomic variables and commodity indices. We employ correlation analysis for our purposes. The obtained results indicate that Precious Metal and Livestock are valuable equity portfolio diversifiers, while Industrial Metals volatility has much in common with the fluctuations of broad stock market.
Downloads
References
Artis M., Chouliarakis G., Harischandra P. (2009). Business Cycle Synchronization Since 1880, ?Centre for Growth and Business Cycle Research Discussion Paper Series?, No.153.
Baxter M., Kouparitsas M. A. (2005),Determinants of business cycle comovement: a robust analysis, ?Journal of Monetary EconomicsJanuary?, Vol. 52, No. 1, pp. 113-157.
Bernstein R., Rasco J. (2007), Global Agriculture &Agflation, Merril Lynch, 27 April 2007. http://www.fullermoney.com/content/2007-05-14/MerrillLynchOnFoodInflation27Apr07.PDF (as on 10th Jan 2012).
Camacho M., Perez-Quiros G. (2011), Commodity prices and the business cycle in Latin America: Living and dying by commodities?,http://www.um.es/econometria/Maximo/articulos/commodities.pdf(as on 10th Jan 2012).
Demidova-Menzel N., Heidorn T. (2007), Gold in the Investment Portfolio, ?Frankfurt School - Working Paper Series?, No. 87.
Fabozzi F. J., Fuss R., Kaiser D.G. (2008), The Handbook of Commodity Investing, JohnWiley&Sons, Inc., Hoboken, New Jersey.
Feldstein, M. (1981). The Effect of Inflation on the Prices of Land And Gold, ?NBER Working Papers?, No. 0296.
Flood R. P., Rose A.K. (2010),Inflation targeting and business cycle synchronization, ?Journal of International Money and Finance?, Vol. 29, No. 4, pp. 704-727.
Fritsche U., Marklein F., (2001), Leading Indicators of Euroland Business Cycles, ?Discussion Papers of DIW Berlin?, No. 238.
Goldman Sachs & Co. (1996),The Strategic Case for Using Commodities in Portfolio Diversification.?Goldman Sachs Research Series on Commodities as an Asset Class?, July.
Goldman Sachs (2012), S&P GSCI? Commodity Index Approach, http://www2.goldmansachs.com/what-we-do/securities/products-and-business-groups/products/gsci/approach.html(as on 10th Jan 2012).
Gorton G., Rouwenhorst K. G., (2006), Facts and Fantasies about Commodities Futures, ?Financial Analysts Journal?, Vol. 62, No. 2, pp. 47-68.
Greer R. (1997), What is an Asset Class, Anyway?, ?The Journal of Portfolio Management?, Vol. 23, No. 2, pp. 86-91.
Greer R. (2000), The Nature of Commodity Index Returns, ?Journal of Alternative Investments?, Summer, pp. 45-52.
Grubel H.G. (1968),Internationally Diversified Portfolios: Welfare Gains and Capital Flows,?The American Economic Review?, Vol. 58, No. 5, pp. 1299?1314.
Gubler M., Hertweck M. S. (2011), Commodity Price Shocks and the Business Cycle: Structural Evidence for the U.S, ?Working Paper Series of the Department of Economics, University of Konstanz?, No. 2011-03.
Hess D., Huang H., Niessen-Ruenzi A. (2008), How Do Commodity Futures Respond to Macroeconomic News?, ?Financial Markets and Portfolio Management?, Vol. 22, No. 2, pp. 127-146.
Hodrick R., Prescott E. C. (1997), Postwar U.S. Business Cycles: An Empirical Investigation, ?Journal of Money, Credit, and Banking?, Vol. 29, No. 1, pp. 1?16.
Idzorek T., (2006), Strategic Asset Allocation and Commodities, Ibbotson Associates, March 27.
Imbs J. (2004),Trade, Finance, Specialization and Synchronization,?Review of Economics and Statistics?, Vol. 86, No. 3, pp. 723-734.
Inklaar R., de Haan J. (2001), Is there really a European business cycle? A comment, ?Oxford Economic Papers?, Vol. 53, No. 2, pp. 215-20.
Kaplan P. D., Lummer S. L. (1998), Update: GSCI Collateralized Futures as a Hedging and Diversification Tool for Institutional Portfolios, ?The Journal of Investing?, Vol. 7, No. 4, pp. 11-17.
Laws J., Thompson J. (2007), Portfolio Diversification and Commodity Futures, ?Liverpool Business School Working Paper?, May.
Levy H., Sarnat M. (1970),International Diversification of Investment Portfolios,?The American Economic Review?, Vol. 60, No. 4, pp. 668-675.
Markowitz, H.M. (1952). Portfolio Selection, ?The Journal of Finance?, Vol. 7, No 1, pp. 77?91.
Mohanty J., Singh B., Jain R. (2003), Business cycles and leading indicators of industrial activity in India. Published, ?Reserve Bank of India Occasional Papers?, Vol. 21, No. 2-3.
Niemczak, K. (2010). Eastern European Equity Markets and the Subprime Crisis. Does Emerging Europe Still Offer Diversification Benefits?, ?e-Finanse?, Vol. 6, No. 3, pp. 47-63.
Samuelson P. (1966), Science and Stock, ?Newsweek?, September 19, p. 92.
Sinquefield, R.A. (1996),Where are the gains from international diversification?,?Financial Analysts Journal?, Vol. 52, No. 1, pp. 8-14.
Standard & Poor's (2012), S&P GSCI? Index Factsheet, http://www.standardandpoors.com/indices/articles/en/us/?articleType=PDF&assetID=1245186878016 (as on 10th Jan 2012).
Stock J. H., Watson M. W. (1998), Business Cycle Fluctuations in U.S. Macroeconomic Time Series, ?NBER Working Paper?, No. 6528.
Strategic Investment Solutions (2011), Real Return Assets, ?SIS Research Paper?, June 2011.