Political Uncertainty and Commodity Markets
Charles A. Dice Center Working Paper No. 2017-25
54 Pages Posted: 6 Nov 2017 Last revised: 8 Jun 2020
Date Written: June 5, 2020
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
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