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Predictability of structural co-movement in commodity prices: the role of technical indicators

Libo Yin (), Qingyuan Yang and Zhi Su

Quantitative Finance, 2017, vol. 17, issue 5, 795-812

Abstract: This paper investigates the financialization and structural co-movement of several commodity futures using factor variance decomposition and predictability of technical indicators and macro variables. We find that financialization is still a dominant player in the commodity market and that recent commodity price fluctuations can be significantly and robustly forecasted by technical analyses of commodity index investments. Moreover, the co-movement of commodities is demonstrated by variance decomposition and explained as commodity index investment, which provides evidence of financialization. The overall empirical analysis reveals that technical indicators and macro variables can statistically and economically forecast the indexed investment and off-index trading, respectively, which indicates that they are suitable predictors of the commodity markets.

Date: 2017
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Handle: RePEc:taf:quantf:v:17:y:2017:i:5:p:795-812