Paper #1405

Title:

The changing relationship between commodity prices and equity prices in commodity exporting

Author:

Barbara Rossi

Date:

October 2012

Abstract:

We explore the linkage between equity and commodity markets, focusing in particular on its evolution over time. We document that a country's equity market value has significant out-of-sample predictive ability for the future global commodity price index for several primary commodity-exporting countries. The out-of-sample predictive ability of the equity market appears around 2000s. The results are robust to using several control variables as well as firm-level equity data. Finally, our results indicate that exchange rates are a better predictor of commodity prices than equity markets, especially at very short horizons.

Keywords:

Commodity prices, equity prices, exchange rates, forecasting.

JEL codes:

C22, C52, C53

Area of Research:

Macroeconomics and International Economics / Statistics, Econometrics and Quantitative Methods

Published in:

IMF Economic Review, 60 (49), 533-539, 2012

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