Forecasting Commodity Prices Using the Term Structure

Yasmeen Idilbi-Bayaa and Mahmoud Qadan
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Yasmeen Idilbi-Bayaa: School of Business, Faculty of Social Sciences, University of Haifa, Haifa 3498838, Israel
Mahmoud Qadan: School of Business, Faculty of Social Sciences, University of Haifa, Haifa 3498838, Israel

JRFM, 2021, vol. 14, issue 12, 1-39

Abstract: The aim of this study is to test the ability of the yield curve on US government bonds to forecast the future evolution in the prices of commodities often used in as raw materials. We consider the monthly prices of nine commodities for more than 30 years. Our findings, confirmed by several parametric and non-parametric tests, are robust and indicate that the ability to forecast future performance changes over time. Specifically, between 1986 and the early 2000s the yield curve was quite successful in forecasting monthly changes in commodity prices, but that success diminished in the period following. One possible explanation for this outcome is the increased flow of capital into the commodity market resulting in stronger correlations with the equity markets and a breakdown of the obvious relationship between commodities and business cycle. Our findings are important for asset pricing, commodity traders and policy makers.

Keywords: forecasting; commodity market; metals; term structure; yield spread (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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