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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.

Suggested Citation

  • Narayan, Paresh Kumar & Narayan, Seema & Sharma, Susan Sunila, 2013. "An analysis of commodity markets: What gain for investors?," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3878-3889.
  • Handle: RePEc:eee:jbfina:v:37:y:2013:i:10:p:3878-3889
    DOI: 10.1016/j.jbankfin.2013.07.009
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    More about this item

    Keywords

    Commodity futures; Commodity spot; Trading strategies; Profits;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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