Forecasting Spot and Futures Price Volatility of Agricultural Commodities: The Role of Climate-Related Migration Uncertainty

Afees Salisu, Ahamuefula Ogbonna, Rangan Gupta () and Elie Bouri ()
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Rangan Gupta: Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa
Elie Bouri: School of Business, Lebanese American University, Lebanon

No 202516, Working Papers from University of Pretoria, Department of Economics

Abstract: We evaluate the predictive ability of the newly developed climate-related migration uncertainty index (CMUI) and its two components, the climate uncertainty index (CUI) and the migration uncertainty index (MUI), for the return volatility of agricultural commodity prices in both futures and spot markets. Employing a GARCH-MIDAS model, based on mixed data frequencies covering the period from 1977Q4 (with the earliest daily observation on October 3, 1977) to 2024Q1 (with the latest daily observation on March 29, 2024), we conduct both statistical and economic evaluations, including the Modified Diebold-Mariano test, Model Confidence Set procedure, and risk-adjusted performance metrics. The results demonstrate that integrating CUI, MUI, and CMUI into the predictive model of the return volatility of agricultural commodity prices significantly improves forecast accuracy relative to the conventional GARCH-MIDAS-RV benchmark. These findings suggest that the climate and migration related uncertainty indices are both statistically significant and economically relevant, offering enhanced predictive power and investment performance.

Keywords: Climate-related Migration Uncertainty Index; Climate Uncertainty Index; Migration Uncertainty Index; Agricultural commodity prices; GARCH-MIDAS; Forecast evaluation; Economic Significance (search for similar items in EconPapers)
JEL-codes: C53 D8 F22 Q02 Q13 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2025-04
New Economics Papers: this item is included in nep-for and nep-mig
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