Predictability in commodity markets: Evidence from more than a century

Fabian Hollstein, Marcel Prokopczuk (), Björn Tharann and Chardin Wese Simen

Journal of Commodity Markets, 2021, vol. 24, issue C

Abstract: Using more than 140 years of data, we comprehensively analyze the predictive power of a broad set of business cycle variables for risk and return in commodity spot markets. We find that industrial production growth and inflation are the strongest predictors for future commodity returns. Several further variables help predict future commodity volatilities. The introduction of derivatives generally reduces the predictability in the most active commodity markets but increases the predictability in others. Thus, derivatives likely make markets more efficient, but also attract most of the price discovery activity. Commodity spot volatilities generally rise after futures introduction.

Keywords: Commodities; Return predictability; Derivatives introduction; Business cycle; Volatility predictability (search for similar items in EconPapers)
JEL-codes: G10 G11 G17 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:24:y:2021:i:c:s2405851321000052

DOI: 10.1016/j.jcomm.2021.100171

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