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An analysis of commodity markets: What gain for investors?

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  • Narayan, Paresh Kumar
  • Narayan, Seema
  • Sharma, Susan Sunila

Abstract

In this paper we study whether the commodity futures market predicts the commodity spot market. Using historical daily data on four commodities—oil, gold, platinum, and silver—we find that they do. We then show how investors can use this information on the futures market to devise trading strategies and make profits. In particular, dynamic trading strategies based on a mean–variance investor framework produce somewhat different results compared with those based on technical trading rules. Dynamic trading strategies suggest that all commodities are profitable and profits are dependent on structural breaks. The most recent global financial crisis marked a period in which commodity profits were the weakest.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 10 ()
Pages: 3878-3889

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Handle: RePEc:eee:jbfina:v:37:y:2013:i:10:p:3878-3889

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Keywords: Commodity futures; Commodity spot; Trading strategies; Profits;

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Cited by:
  1. Narayan, Paresh Kumar & Sharma, Susan Sunila & Thuraisamy, Kannan Sivananthan, 2014. "An analysis of price discovery from panel data models of CDS and equity returns," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 167-177.
  2. Makin, Anthony J. & Narayan, Paresh Kumar & Narayan, Seema, 2014. "What expenditure does Anglosphere foreign borrowing fund?," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 63-78.

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