Release: 5425-07

For Release: December 19, 2007

CFTC Study Finds Independent-Moving Commodity and Equity Markets

Washington, DC – The Commodity Futures Trading Commission’s (CFTC) Office of the Chief Economist today released a study that examines the relationship between returns on benchmark commodity and equity investments.

Given major changes in the size and makeup of commodity futures markets in recent years, some market commentators have asked whether commodities now move in sync with traditional financial assets. The study, titled “Commodities and Equities: A Market of One?” shows that, amidst increased investment in commodities in recent years, the relation between the returns on investable commodity and equity indices has not changed significantly.

The study finds little statistical evidence that daily, weekly or monthly returns on these two investments have been moving in sync. Furthermore, the study finds that equity and commodity investment prices do not appear to share a common driving factor over long time periods. Finally, the study also finds that equity and commodity markets do not become a “market of one” during periods of very large stock market movements. In sum, commodity markets seem to have retained their role as a portfolio diversification tool.

“Our study shows that the commodities markets are very independent markets,” said CFTC Chief Economist Jeff Harris. “The study reinforces the notion that it is the fundamentals, such as weather, geopolitical forces and supply/demand that continue to drive commodity futures markets.”

The study examines a 17-year period (from 1991 to present) that includes the decade before the commodity investment boom, an economic recession, and the commodity price boom. Its authors are Drs. Bahattin Büyükşahin (CFTC), Michael S. Haigh (Société Générale), and Michel A. Robe (American University and CFTC).

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R. David Gary
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Last Updated: June 9, 2008