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The Information Content of a Nonlinear Macro-Finance Model for Commodity Prices

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  • Saqib Khan
  • Zeigham Khokher
  • Timothy Simin

Abstract

State-of-the-art term structure models of commodity prices have serious difficulties extrapolating the prices of long-maturity futures contracts from short-dated contracts. This situation is problematic for valuing real commodity-linked assets. We estimate a nonlinear four-factor continuous time model of commodity price dynamics. The model nests many previous specifications. To estimate the model, we use crude oil prices and inventories. The inventory data and nonlinear price dynamics have a large impact on oil price forecasts. The additional factor in our model compared with current three-factor models has a significant impact on model-implied long-maturity futures prices.Received November 23, 2015; editorial decision September 12, 2016 by Editor Geert Bekaert.

Suggested Citation

  • Saqib Khan & Zeigham Khokher & Timothy Simin, 2017. "The Information Content of a Nonlinear Macro-Finance Model for Commodity Prices," The Review of Financial Studies, Society for Financial Studies, vol. 30(8), pages 2818-2850.
    • Handle: RePEc:oup:rfinst:v:30:y:2017:i:8:p:2818-2850.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhw087
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    Cited by:

    1. Yang Liu & Liyan Han & Libo Yin, 2018. "Does news uncertainty matter for commodity futures markets? Heterogeneity in energy and non‐energy sectors," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(10), pages 1246-1261, October.
    2. Ames, Matthew & Bagnarosa, Guillaume & Matsui, Tomoko & Peters, Gareth W. & Shevchenko, Pavel V., 2020. "Which risk factors drive oil futures price curves?," Energy Economics, Elsevier, vol. 87(C).
    3. Liu, Yang & Han, Liyan & Xu, Yang, 2021. "The impact of geopolitical uncertainty on energy volatility," International Review of Financial Analysis, Elsevier, vol. 75(C).
    4. V., Ernesto Guerra & H., Eugenio Bobenrieth & H., Juan Bobenrieth & Wright, Brian D., 2023. "Endogenous thresholds in energy prices: Modeling and empirical estimation," Energy Economics, Elsevier, vol. 121(C).
    5. Filippo Natoli, 2021. "Financialization Of Commodities Before And After The Great Financial Crisis," Journal of Economic Surveys, Wiley Blackwell, vol. 35(2), pages 488-511, April.
    6. Wang, Qiao & Balvers, Ronald, 2021. "Determinants and predictability of commodity producer returns," Journal of Banking & Finance, Elsevier, vol. 133(C).

    More about this item

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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