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Do Commodity Futures Help Forecast Spot Prices?

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  • Mr. David A Reichsfeld
  • Mr. Shaun K. Roache

Abstract

We assess the spot price forecasting performance of 10 commodity futures at various horizons up to two years and test whether this performance is affected by market conditions. We reject efficient markets based on in-sample tests but, out-of-sample, we find that the forecast from the futures market is hard to beat. We find that the forecasting performance of futures does not depend on the slope of the futures curve, in contrast to the predictions of well-known models of commodity markets. We also find futures' forecasting performance to be invariant to whether prices are in an upswing or downswing, casting doubt on aspersions that uninformed investors participating during bull markets impede the price discovery process.

Suggested Citation

  • Mr. David A Reichsfeld & Mr. Shaun K. Roache, 2011. "Do Commodity Futures Help Forecast Spot Prices?," IMF Working Papers 2011/254, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2011/254
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    References listed on IDEAS

    as
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    6. Ms. Nese Erbil & Mr. Shaun K. Roache, 2010. "How Commodity Price Curves and Inventories React to a Short-Run Scarcity Shock," IMF Working Papers 2010/222, International Monetary Fund.
    7. Menzie D. Chinn & Olivier Coibion, 2014. "The Predictive Content of Commodity Futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 34(7), pages 607-636, July.
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