Linkages among U.S. Treasury Bond Yields, Commodity Futures and Stock Market Implied Volatility: New Nonparametric Evidence

Abstract

This paper aims to explore specific cross-asset market correlations over the past fifteen-yearperiod- from January 04, 1999 till April 01, 2015, and within four sub-phases covering both the crisis and the non-crisis periods. On the basis of multivariate statistical methods, we focus on investigating relations between selected well-known market indices-U. S. treasury bond yields-the 30-year treasury yield index (TYX) and the 10-year treasury yield (TNX); commodity futuresthe TR/J CRB; and implied volatility of S& P 500 index-the VIX. We estimate relative logarithmic returns by using monthly close prices adjusted for dividends and splits and run normality and correlation analyses. This paper indicates that the TR/J CRB can be adequately modeled by a normal distribution, whereas the rest of benchmarks do not come from a normal distribution. This paper, inter alia, points out some evidence of a statistically significant negative relationship between bond yields and the VIX in the past fifteen years and a statistically significant negative linkage between the TR/J CRB and the VIX since 2009. In rather general terms, this paper thereafter supports the a priori idea-financial markets are interconnected. Such knowledge can be beneficial for building and testing accurate financial market models, and particularly for the understanding and recognizing market cycles.