Forecasting commodity prices: GARCH, jumps, and mean reversion

Jean-Thomas Bernard (), Lynda Khalaf, Maral Kichian and Sebastien Mcmahon
Additional contact information
Maral Kichian: Research Department, Bank of Canada, Ottawa, Ontario, Canada, Postal: Research Department, Bank of Canada, Ottawa, Ontario, Canada
Sebastien Mcmahon: Ministry of Finance, and GREEN, Université Laval, Quebec City, Quebec, Canada, Postal: Ministry of Finance, and GREEN, Université Laval, Quebec City, Quebec, Canada

Journal of Forecasting, 2008, vol. 27, issue 4, 279-291

Abstract: In examining stochastic models for commodity prices, central questions often revolve around time-varying trend, stochastic convenience yield and volatility, and mean reversion. This paper seeks to assess and compare alternative approaches to modelling these effects, with focus on forecast performance. Three specifications are considered: (i) random-walk models with GARCH and normal or Student- t innovations; (ii) Poisson-based jump-diffusion models with GARCH and normal or Student- t innovations; and (iii) mean-reverting models that allow for uncertainty in equilibrium price. Our empirical application makes use of aluminium spot and futures price series at daily and weekly frequencies. Results show: (i) models with stochastic convenience yield outperform all other competing models, and for all forecast horizons; (ii) the use of futures prices does not always yield lower forecast error values compared to the use of spot prices; and (iii) within the class of (G)ARCH random-walk models, no model uniformly dominates the other. Copyright © 2008 John Wiley & Sons, Ltd.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
http://hdl.handle.net/10.1002/for.1061 Link to full text; subscription required (text/html)

Related works:
Working Paper: Forecasting Commodity Prices: GARCH, Jumps, and Mean Reversion (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jof:jforec:v:27:y:2008:i:4:p:279-291

DOI: 10.1002/for.1061

Access Statistics for this article

Journal of Forecasting is currently edited by Derek W. Bunn

More articles in Journal of Forecasting from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().