Do Commodity Futures Help Forecast Spot Prices?
Electronic Access:
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Summary:
We assess the spot price forecasting performance of 10 commodity futures at various horizons up to two years and test whether this performance is affected by market conditions. We reject efficient markets based on in-sample tests but, out-of-sample, we find that the forecast from the futures market is hard to beat. We find that the forecasting performance of futures does not depend on the slope of the futures curve, in contrast to the predictions of well-known models of commodity markets. We also find futures' forecasting performance to be invariant to whether prices are in an upswing or downswing, casting doubt on aspersions that uninformed investors participating during bull markets impede the price discovery process.
Series:
Working Paper No. 2011/254
Subject:
Commodities Commodity prices Futures Futures markets Return on investment
English
Publication Date:
November 1, 2011
ISBN/ISSN:
9781463923891/1018-5941
Stock No:
WPIEA2011254
Pages:
25
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