The Information in the Term Structure of Commodity Futures

Abstract

This article uses the Expectations Hypothesis (EH), one of the oldest theories in finance, to extract the information contained in the term structure of commodity futures prices. Under the powerful framework provided by the EH, we find a significant amount of predictability in commodity futures yields, but little evidence of time-varying expected roll returns. Our results suggest that investors in futures markets can predict changes in fundamental measures of commodities — such as inventories, supply, or demand — well in advance.

Keywords: commodities, futures, expectations hypothesis, term structure