Political Uncertainty and Commodity Markets

Fisher College of Business Working Paper No. 2017-03-025

Charles A. Dice Center Working Paper No. 2017-25

54 Pages Posted: 6 Nov 2017 Last revised: 8 Jun 2020

See all articles by Kewei Hou

Kewei Hou

Ohio State University (OSU) - Department of Finance

Ke Tang

Institute of Economics, School of Social Sciences, Tsinghua University

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Date Written: June 5, 2020

Abstract

We study the effects of political uncertainty on commodity markets from both theoretical and empirical perspectives. Consistent with our theoretical predictions, commodity prices and inventories decline by 6.6% and 5.7%, respectively, and convenience yields increase by 1.9% in the quarter leading up to U.S. presidential elections, our proxy for political uncertainty on the demand side. Opposite results are obtained for political uncertainty on the supply side using national elections in major commodity-producing countries. We do not observe significant changes in risk premiums before elections. Furthermore, we show that gold is not an effective hedge against political uncertainty.

Keywords: Political Uncertainty, Commodity Prices, Inventories, Convenience Yields, Risk Premiums, U.S. Presidential Elections

JEL Classification: G12, G14, G15, G18, Q02

Suggested Citation

Hou, Kewei and Tang, Ke and Zhang, Bohui, Political Uncertainty and Commodity Markets (June 5, 2020). Fisher College of Business Working Paper No. 2017-03-025, Charles A. Dice Center Working Paper No. 2017-25, Available at SSRN: https://ssrn.com/abstract=3064295 or http://dx.doi.org/10.2139/ssrn.3064295

Kewei Hou (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-0552 (Phone)
614-292-2418 (Fax)

Ke Tang

Institute of Economics, School of Social Sciences, Tsinghua University ( email )

No.1 Tsinghua Garden
Beijing, 100084
China

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen ( email )

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