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The Predictive Content of Commodity Futures

Author

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  • Menzie D. Chinn

    () (Department of Economics, University of Wisconsin)

  • Olivier Coibion

    () (Department of Economics, College of William and Mary)

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.

Suggested Citation

  • Menzie D. Chinn & Olivier Coibion, 2010. "The Predictive Content of Commodity Futures," Working Papers 89, Department of Economics, College of William and Mary.
  • Handle: RePEc:cwm:wpaper:89
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    More about this item

    Keywords

    futures; energy; petroleum; natural gas; heating oil; gasoline; precious metals; base metals; agricultural commodities; forecasting; efficient markets hypothesis.;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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