Tuesday, June 14, 2011

Commodities more equity sensitive



Commodities have become more equity sensitive as measured by the beta over two distinct periods. We have excluded the crash period during the pre- and post Lehman crisis. The beta has moved from close to zero with a high intercept or alpha component to a higher positive beta. A good portion of this beta may be related to macro factors like the growth of the global economy over the last two years, but it is surprising how this relationship has strengthened.

The same effect can be found if the analysis uses the EFA index or an emerging market index. Similarly, there is a stronger negative relationship with bonds than what existed pre-Lehman. The link between asset classes has become stronger and it is more important to think about the relationship across asset classes.

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