Commodity futures prices: More evidence on forecast power, risk premia and the theory of storage
Marcel Prokopczuk () and
The Quarterly Review of Economics and Finance, 2013, vol. 53, issue 1, 73-85
In this paper, we examine the temporal stability of the evidence for two commodity futures pricing theories. We investigate whether the forecast power of commodity futures can be attributed to the extent to which they exhibit seasonality and we also consider whether there are time varying parameters or structural breaks in these pricing relationships. Compared to previous studies, we find stronger evidence of seasonality in the basis, which supports the theory of storage. The power of the basis to forecast subsequent price changes is also strengthened, while results on the presence of a risk premium are inconclusive. In addition, we show that the forecasting power of commodity futures cannot be attributed to the extent to which they exhibit seasonality. We find that in most cases where structural breaks occur, only changes in the intercepts and not the slopes are detected, illustrating that the forecast power of the basis is stable over different economic environments.
Keywords: Commodity futures; Theory of storage; Risk premia (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:53:y:2013:i:1:p:73-85
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