Predictability in Commodity Markets: Evidence from More Than a Century

48 Pages Posted: 27 Apr 2020

See all articles by Fabian Hollstein

Fabian Hollstein

Leibniz University Hannover - School of Economics and Management

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Björn Tharann

Leibniz Universität Hannover

Chardin Wese Simen

University of Liverpool Management School

Date Written: April 3, 2020

Abstract

Using more than 140 years of data, we comprehensively analyze the predictive power of a broad set of macroeconomic variables for risk and return in commodity spot markets. We find that industrial production growth and inflation are the strongest predictors for future commodity excess returns. Many further variables help predict future commodity volatilities. The introduction of derivatives generally reduces the predictability in the most active commodity markets but increases the predictability in others. Thus, derivatives likely make markets more efficient, but also attract most of the price discovering activity. Commodity spot volatilities generally rise after futures introduction.

Keywords: Commodities, Return Predictability, Derivatives Introduction, Business Cycle, Volatility Predictability

JEL Classification: G10, G11, G17

Suggested Citation

Hollstein, Fabian and Prokopczuk, Marcel and Tharann, Björn and Wese Simen, Chardin, Predictability in Commodity Markets: Evidence from More Than a Century (April 3, 2020). Available at SSRN: https://ssrn.com/abstract=3567630 or http://dx.doi.org/10.2139/ssrn.3567630

Fabian Hollstein (Contact Author)

Leibniz University Hannover - School of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Björn Tharann

Leibniz Universität Hannover ( email )

Welfengarten 1
D-30167 Hannover, 30167
Germany

Chardin Wese Simen

University of Liverpool Management School ( email )

Management School
University of Liverpool
Liverpool, L69 7ZH
United Kingdom

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