Forecasting Aluminum Prices with Commodity Currencies

21 Pages Posted: 16 Jan 2020

See all articles by Pablo M. Pincheira

Pablo M. Pincheira

Adolfo Ibanez University - School of Business

Nicolas Hardy

Universidad Finis Terrae

Date Written: November 30, 2019

Abstract

In this paper we show that the exchange rates of some commodity exporter countries have the ability to predict the price of spot and future contracts of aluminum. This is shown with both insample and out-of-sample analyses. The theoretical underpinning of these results relies on the present-value model for exchange rate determination and on the tight connection between commodity prices and the currencies of commodity exporter countries. We show results using traditional statistical metrics of forecast accuracy: Mean Squared Prediction Error and Mean Directional Accuracy. We also show that the first principal component of our sample of exchange rates is a useful way to summarize the predictive information contained in our set of commodity currencies.

Keywords: Forecasting, commodities, aluminum, univariate time-series models, out-of-sample comparison, exchange rates

JEL Classification: C52, C53, G17, E270, E370, F370, L740, O180, R310

Suggested Citation

Pincheira, Pablo M. and Hardy, Nicolas, Forecasting Aluminum Prices with Commodity Currencies (November 30, 2019). Available at SSRN: https://ssrn.com/abstract=3511564 or http://dx.doi.org/10.2139/ssrn.3511564

Pablo M. Pincheira (Contact Author)

Adolfo Ibanez University - School of Business ( email )

Diagonal Las Torres 2640
Peñalolén
Santiago
Chile

Nicolas Hardy

Universidad Finis Terrae ( email )

Av. Pedro de Valdivia 1509
Ñuñoa
Santiago, Santiago
Chile

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