Common Drivers of Commodity Futures?
62 Pages Posted: 30 Sep 2022 Last revised: 10 Oct 2022
Date Written: September 28, 2022
We study potential drivers for a large cross-section of commodity futures. Unlike previous studies, we examine the effect of monthly drivers on daily returns using mixed-frequency Granger causality tests. We find real economic activity as a main driver on a monthly basis, whereas financial variables seem to affect returns at daily frequency. The linkages are time-varying for various stages of the financialization of commodity markets with an overall dissipating impact in the recent period of de-financialization. As our results strongly differ from traditional low-frequency Granger causality tests under the temporal aggregation of futures returns, we show the economic value of accessing information at a higher frequency in an out-of-sample trading study. Our findings emphasize the importance of using mixed-frequency techniques to uncover relationships between monthly-published macroeconomic variables and commodity prices.
Keywords: Commodity futures, VAR, Granger causality, Mixed data sampling
JEL Classification: C58, G17, Q02
Suggested Citation: Suggested Citation