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The Predictive Content of Commodity Futures

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  • Menzie D. Chinn
  • Olivier Coibion

Abstract

This paper examines the relationship between spot and futures prices for a broad range of commodities, including energy, precious and base metals, and agricultural commodities. In particular, we examine whether futures prices are (1) an unbiased and/or (2) accurate predictor of subsequent spot prices. While energy futures prices are generally unbiased predictors of future spot prices, there is much stronger evidence against the null for other commodity markets. This difference appears to be driven in part by the depth of each market. We find that over the last five years, it is much harder to reject the null of futures prices being unbiased predictors of future spot prices than in earlier periods for almost all commodities. In addition, futures prices do approximately as well as a random walk in forecasting future spot prices, and vastly outperform a reduced form empirical model.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15830.

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Date of creation: Mar 2010
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Publication status: published as "The Predictive Content of Commodity Futures," Journal of Futures Markets, January 2013 (with Olivier Coibion).
Handle: RePEc:nbr:nberwo:15830

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  1. Bopp, Anthony E. & Lady, George M., 1991. "A comparison of petroleum futures versus spot prices as predictors of prices in the future," Energy Economics, Elsevier, Elsevier, vol. 13(4), pages 274-282, October.
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  14. Menzie D. Chinn & Michael LeBlanc & Olivier Coibion, 2005. "The Predictive Content of Energy Futures: An Update on Petroleum, Natural Gas, Heating Oil and Gasoline," NBER Working Papers 11033, National Bureau of Economic Research, Inc.
  15. James D. Hamilton, 2010. "Causes and consequences of the oil shock of 2007–08," CQER Working Paper, Federal Reserve Bank of Atlanta 2009-02, Federal Reserve Bank of Atlanta.
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Cited by:
  1. Baumeister, Christiane & Kilian, Lutz, 2013. "Forecasting the Real Price of Oil in a Changing World: A Forecast Combination Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9569, C.E.P.R. Discussion Papers.
  2. Niels C. Thygesen & Robert N. McCauley & Guonan Ma & William R. White & Jakob de Haan & Willem van den End & Jon Frost & Christiaan Pattipeilohy & Mostafa Tabbae & Ernest Gnan & Morten Balling & Paul , 2013. "50 Years of Money and Finance: Lessons and Challenges," SUERF 50th Anniversary Volume - 50 Years of Money and Finance: Lessons and Challenges, SUERF - The European Money and Finance Forum, number 1 edited by Morten Balling & Ernest Gnan.
  3. Ashima Goyal & Shruti Tripathi, 2012. "Regulations and price discovery: oil spot and futures markets," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-016, Indira Gandhi Institute of Development Research, Mumbai, India.
  4. Baumeister, Christiane & Kilian, Lutz, 2013. "Are product spreads useful for forecasting? An empirical evaluation of the Verleger hypothesis," CFS Working Paper Series 2013/09, Center for Financial Studies (CFS).
  5. David A Reichsfeld & Shaun K. Roache, 2011. "Do Commodity Futures Help Forecast Spot Prices?," IMF Working Papers 11/254, International Monetary Fund.
  6. Koop, Gary & Tole, Lise, 2013. "Modeling the relationship between European carbon permits and certified emission reductions," Journal of Empirical Finance, Elsevier, Elsevier, vol. 24(C), pages 166-181.
  7. William Arrata & Alejandro Bernales & Virginie Coudert, 2013. "The Effects of Derivatives on Underlying Financial Markets: Equity Options, Commodity Derivatives and Credit Default Swaps," SUERF 50th Anniversary Volume Chapters, SUERF - The European Money and Finance Forum.
  8. Carlo Rosa, 2013. "The high-frequency response of energy prices to monetary policy: understanding the empirical evidence," Staff Reports, Federal Reserve Bank of New York 598, Federal Reserve Bank of New York.
  9. Vadhindran K. Rao, 2011. "Multiperiod Hedging using Futures: Mean Reversion and the Optimal Hedging Path," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 4(1), pages 133-161, December.

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