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Can commodity futures risk factors predict economic growth?

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  • Jangkoo Kang
  • Kyung Yoon Kwon

Abstract

This paper examines whether commodity futures risk factors can predict future economic growth. We test risk factors capturing various spot or term premia and find that only three factors capturing term premia on the basis‐momentum, basis, and change in slope are robust predictors for future economic growth, especially for long horizons. Our findings highlight the importance of the term premia, rather than the spot premia on which the literature has mainly focused. Moreover, we find that possible explanations for predictability of commodity factors—the intertemporal asset pricing model and information diffusion explanation—are all inconsistent with our empirical results.

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  • Jangkoo Kang & Kyung Yoon Kwon, 2020. "Can commodity futures risk factors predict economic growth?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(12), pages 1825-1860, December.
    • Handle: RePEc:wly:jfutmk:v:40:y:2020:i:12:p:1825-1860
    DOI: 10.1002/fut.22155
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    Cited by:

    1. Giovanni Ballarin & Petros Dellaportas & Lyudmila Grigoryeva & Marcel Hirt & Sophie van Huellen & Juan-Pablo Ortega, 2022. "Reservoir Computing for Macroeconomic Forecasting with Mixed Frequency Data," Papers 2211.00363, arXiv.org, revised Jan 2024.
    2. H. Kent Baker & Satish Kumar & Nitesh Pandey, 2021. "Forty years of the Journal of Futures Markets: A bibliometric overview," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(7), pages 1027-1054, July.
    3. Ren, Yinghua & Tan, Anqi & Zhu, Huiming & Zhao, Wanru, 2022. "Does economic policy uncertainty drive nonlinear risk spillover in the commodity futures market?," International Review of Financial Analysis, Elsevier, vol. 81(C).
    4. Bianchi, Robert J. & Fan, John Hua & Zhang, Tingxi, 2021. "Investable commodity premia in China," Journal of Banking & Finance, Elsevier, vol. 127(C).
    5. Luiz Augusto Magalhães & Thiago Christiano Silva & Benjamin Miranda Tabak, 2022. "Hedging commodities in times of distress: The case of COVID‐19," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(10), pages 1941-1959, October.

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