Fear in commodity return prediction

Zhen Cao, Liyan Han, Xinbei Wei and Qunzi Zhang

Finance Research Letters, 2022, vol. 46, issue PB

Abstract: Stock variance, which is the sum of squared daily returns on the S&P 500, implies the level of investor fear in stock market and performs well at predicting the return of index commodity futures. This prediction still holds after controlling for the sample period and macroeconomic variables. Also, the fear index performs very well at predicting index commodity futures returns out-of-sample, and the asset allocation exercise based on predictive regressions also shows that stock variance generates economic performance. The results remain robust while considering different macroeconomic conditions, such as recession (expansion), contango (backwardation), or inflation up (down).

Keywords: Commodity return predictability; Fear index; SVAR; Long-run (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004773

DOI: 10.1016/j.frl.2021.102502

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