Do Commodity Futures Help Forecast Spot Prices?

David Reichsfeld and Shaun Roache

No 2011/254, IMF Working Papers from International Monetary Fund

Abstract: We assess the spot price forecasting performance of 10 commodity futures at various horizons up to two years and test whether this performance is affected by market conditions. We reject efficient markets based on in-sample tests but, out-of-sample, we find that the forecast from the futures market is hard to beat. We find that the forecasting performance of futures does not depend on the slope of the futures curve, in contrast to the predictions of well-known models of commodity markets. We also find futures' forecasting performance to be invariant to whether prices are in an upswing or downswing, casting doubt on aspersions that uninformed investors participating during bull markets impede the price discovery process.

Keywords: WP; spot market; risk premium; random walk (search for similar items in EconPapers)
Pages: 25
Date: 2011-11-01
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Citations: View citations in EconPapers (25)

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