Stock Market Predictability and Industrial Metal Returns

50 Pages Posted: 19 Aug 2010 Last revised: 12 Jul 2016

See all articles by Ben Jacobsen

Ben Jacobsen

Tilburg University - TIAS School for Business and Society; Massey University

Ben R. Marshall

Massey University - School of Economics and Finance

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance

Date Written: July 1, 2016

Abstract

Price movements in industrial metals such as copper and aluminum predict stock returns. Increasing industrial metal prices are good news for equity markets in recessions and bad news in expansions. A one standard deviation increase in industrial metal returns predicts a price drop of one and a half percent in monthly stock market returns in expansions and an increase of around a half percent during recessions. The predictability is distinct to and compares favorably with that from more established predictors, with monthly out-of-sample R2’s of 3% to 8%.

Keywords: industrial metals, state-switching, return predictability, gradual information diffusion, business cycle

JEL Classification: G11, G14

Suggested Citation

Jacobsen, Ben and Marshall, Ben R. and Visaltanachoti, Nuttawat, Stock Market Predictability and Industrial Metal Returns (July 1, 2016). 23rd Australasian Finance and Banking Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1660864 or http://dx.doi.org/10.2139/ssrn.1660864

Ben Jacobsen

Tilburg University - TIAS School for Business and Society ( email )

Warandelaan 2
TIAS Building
Tilburg, Noord Brabant 5037 AB
Netherlands

Massey University ( email )

Auckland
New Zealand

Ben R. Marshall (Contact Author)

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand
64 6 350 5799 (Phone)
64 6 350 5651 (Fax)

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
Private Bag 102904, NSMC
Auckland
New Zealand
64 9 414 0800 (43169) (Phone)
64 9 441 8177 (Fax)

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