Forecasting Commodity Prices: Futures Versus Judgment

28 Pages Posted: 13 Feb 2006

See all articles by Chakriya Bowman

Chakriya Bowman

Australian National University - Crawford School of Economics and Government

Aasim Husain

International Monetary Fund (IMF) - Research Department

Date Written: March 2004

Abstract

This paper assesses the performance of three types of commodity price forecasts--those based on judgment, those relying exclusively on historical price data, and those incorporating prices implied by commodity futures. For most of the 15 commodities in the sample, spot and futures prices appear to be nonstationary and to form a cointegrating relation. Spot prices tend to move toward futures prices over the long run, and error-correction models exploiting this feature produce more accurate forecasts. The analysis indicates that on the basis of statistical- and directional-accuracy measures, futures-based models yield better forecasts than historical-data-based models or judgment, especially at longer horizons.

Keywords: Commodity prices, futures, cointegration, error correction, forecast

JEL Classification: E37, G13, O13

Suggested Citation

Bowman, Chakriya and Husain, Aasim, Forecasting Commodity Prices: Futures Versus Judgment (March 2004). IMF Working Paper No. 04/41, Available at SSRN: https://ssrn.com/abstract=878864

Chakriya Bowman (Contact Author)

Australian National University - Crawford School of Economics and Government ( email )

Coombs Building 9
Canberra, Australian Capital Territory 0200
Australia

Aasim Husain

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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