Investing in Commodity Futures Markets: Can Pricing Models Help?

European Journal of Finance, Vol. 18, No. 1-2, 2012

41 Pages Posted: 27 Feb 2009 Last revised: 24 Apr 2012

See all articles by Raphael Paschke

Raphael Paschke

University of Mannheim - Department of Business Administration and Finance

Marcel Prokopczuk

Leibniz Universit├Ąt Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Date Written: November 1, 2008

Abstract

This paper empirically investigates whether continuous time spot price models are able to help to reveal mispriced commodity futures contracts. Mispricings are identified based on the difference between model and observed prices, using four different models for four different markets, namely the crude oil, copper, silver, and the gold markets. Model residuals are found to carry information content for future price movements in excess of the overall market. Residual based investment strategies yield significant excess returns, particularly for the relatively small-sized copper and silver markets.

Keywords: Commodity Investment, Futures, Crude Oil, Copper, Silver, Gold

JEL Classification: G13, G14, G11

Suggested Citation

Paschke, Raphael and Prokopczuk, Marcel, Investing in Commodity Futures Markets: Can Pricing Models Help? (November 1, 2008). European Journal of Finance, Vol. 18, No. 1-2, 2012, Available at SSRN: https://ssrn.com/abstract=1348470 or http://dx.doi.org/10.2139/ssrn.1348470

Raphael Paschke

University of Mannheim - Department of Business Administration and Finance ( email )

D-68131 Mannheim
Germany

Marcel Prokopczuk (Contact Author)

Leibniz Universit├Ąt Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

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