The Changing Relationship Between Commodity Prices and Equity Prices in Commodity Exporting Countries

The paper explores the linkage between equity and commodity markets, focusing in particular on its evolution over time. It documents 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, the results indicate that exchange rates are a better predictor of commodity prices than equity markets, especially at very short horizons. [JEL C22, C52, C53] IMF Economic Review (2012) 60, 533–569. doi:10.1057/imfer.2012.20