Modeling and forecasting commodity market volatility with long‐term economic and financial variables

Duc Khuong Nguyen and Thomas Walther

Journal of Forecasting, 2020, vol. 39, issue 2, 126-142

Abstract: This paper investigates the time‐varying volatility patterns of some major commodities as well as the potential factors that drive their long‐term volatility component. For this purpose, we make use of a recently proposed generalized autoregressive conditional heteroskedasticity–mixed data sampling approach, which typically allows us to examine the role of economic and financial variables of different frequencies. Using commodity futures for Crude Oil (WTI and Brent), Gold, Silver and Platinum, as well as a commodity index, our results show the necessity for disentangling the short‐term and long‐term components in modeling and forecasting commodity volatility. They also indicate that the long‐term volatility of most commodity futures is significantly driven by the level of global real economic activity as well as changes in consumer sentiment, industrial production, and economic policy uncertainty. However, the forecasting results are not alike across commodity futures as no single model fits all commodities.

Date: 2020
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Citations: View citations in EconPapers (34)

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https://doi.org/10.1002/for.2617

Related works:
Working Paper: Modeling and forecasting commodity market volatility with long-term economic and financial variables (2018)
Working Paper: Modeling and Forecasting Commodity Market Volatility with Long-term Economic and Financial Variables (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jforec:v:39:y:2020:i:2:p:126-142

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