Forecasting stock prices with commodity prices: New evidence from Feasible Quasi Generalized Least Squares (FQGLS) with non-linearities

Ismail O. Fasanya, Oluwasegun Adekoya () and Ridwan Sonola

Economic Systems, 2023, vol. 47, issue 2

Abstract: The complexities in modern stock markets make it imperative to unravel the possible predictors of their future values. This paper thus provides insights into the predictability of stock prices of the BRICS countries with large dependence on commodities either for foreign exchange earnings or industrial while accounting for the role of asymmetries. Essentially, empirical evidence abound for the high volatility in world commodity markets, thus making us to determine if positive and negative changes in commodity prices predict stock prices differently. In addition, unlike the traditional forecast models, our choice of forecast models additionally addresses certain statistical features, including conditional heteroskedasticity, serial dependence, persistence and endogeneity, inherent in the predictors, which have the potential of causing estimation bias. In all, we find evidence in favour of the ability of commodity prices to predict stock prices of Brazil, Russia and South Africa. Also, both the in-sample and out-of-sample forecast performances of the predicted models support asymmetries in a number of commodity prices in each of these three countries. Our results are robust to different data samples and forecast horizons.

Keywords: Stock markets; Commodity prices; Asymmetry; Forecast evaluation; BRICS (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:47:y:2023:i:2:s0939362522001054

DOI: 10.1016/j.ecosys.2022.101043

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