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An analysis of commodity markets: What gain for investors?

  • Paresh Kumar Narayan

    ()

    (Deakin University)

  • Seema Narayan

    ()

    (RMIT)

  • Susan S Sharma

    ()

    (Deakin University)

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.

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File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/fin-econometrics/2013_02.pdf
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Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Financial Econometics Series with number 2013_02.

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Length: 46
Date of creation:
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Publication status: published
Handle: RePEc:dkn:ecomet:fe_2013_02
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  1. C. I. Lee & I. Mathur, 1996. "A comprehensive look at the efficacy of technical trading rules applied to cross-rates," The European Journal of Finance, Taylor & Francis Journals, vol. 2(4), pages 389-411.
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  4. Joakim Westerlund & Paresh K Narayan, 2012. "Does the choice of estimator matter when forecasting returns?," Financial Econometics Series 2012_01, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
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  12. Sullivan, Ryan & Timmermann, Allan G & White, Halbert, 1998. "Data-Snooping, Technical Trading Rule Performance and the Bootstrap," CEPR Discussion Papers 1976, C.E.P.R. Discussion Papers.
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  28. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
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