Negative correlation between stock and futures returns : an unexploited hedging opportunity?

For over a decade, academic and industry economists argued that the negative correlation between returns on stocks and commodity futures was evidence that institutional investors should add commodity futures index funds as an asset class in their portfolio management strategies. Does this negative correlation give rise to the possibility of unexploited profit opportunity in the financial markets? Using a rational asset-pricing model, we argue that such a negative correlation could arise as a no-arbitrage equilibrium phenomenon and reflects traders' perceptions about the fundamental processes driving the economy and commodity prices.