One hundred years of rare disaster concerns and commodity prices

Qunzi Zhang

Journal of Futures Markets, 2021, vol. 41, issue 12, 1891-1915

Abstract: This paper shows that rare disaster concern, defined as the news‐implied volatility, performs very well at predicting the return of index commodity futures throughout the whole century (1926–2016). This result holds after controlling for the current business cycle conditions, the macroeconomic variables, and the Volatility Index (VIX). We also find that rare disaster concern performs very well at predicting index commodity futures returns out‐of‐sample. The results remain robust while considering different macroeconomic conditions, such as recession (expansion), contango (backwardation), or inflation up (down).

Date: 2021
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