Forecasting Base Metal Prices with an International Stock Index

14 Pages Posted: 23 May 2021

See all articles by Pablo M. Pincheira

Pablo M. Pincheira

Adolfo Ibanez University - School of Business

Nicolas Hardy

Universidad Finis Terrae

Cristóbal Henriquez

Universidad Finis Terrae

Ignacio Tapia

Universidad Finis Terrae

Andrea Bentancor

Adolfo Ibanez University

Date Written: May 19, 2021

Abstract

In this paper we show that the MSCI ACWI Metals and Mining Index has the ability to predict base metal prices. We use both in-sample and out-of-sample exercises to conduct such examination. The theoretical underpinning of these results relies on the present-value model for stock-price determination. This model has the implication of Granger causality from stock prices to their key determinants. In the case of metal and mining producers, one of the key elements determining the value of these firms is the price of the commodity they produce and export. Our results are consistent with this theoretical framework, as forecasts based on a model including the MSCI index outperform, in terms of Mean Squared Prediction Error, forecasts that do not use the information contained in that index.

Keywords: Forecasting, commodities, base metals, univariate time-series models, out-of-sample comparison, base metal equity securities.

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

Suggested Citation

Pincheira, Pablo M. and Hardy, Nicolas and Henriquez, Cristóbal and Tapia, Ignacio and Bentancor, Andrea, Forecasting Base Metal Prices with an International Stock Index (May 19, 2021). Available at SSRN: https://ssrn.com/abstract=3849161

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

Cristóbal Henriquez

Universidad Finis Terrae ( email )

Pedro de valdivia 1509
Providencia Santiago
Chile

Ignacio Tapia

Universidad Finis Terrae ( email )

Pedro de valdivia 1509
Providencia Santiago
Chile

Andrea Bentancor

Adolfo Ibanez University ( email )

Diagonal Las Torres 2640 Peñaleón
Presidente Errázuriz 3485 Las Condes
Santiago, 794-1169
Chile

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