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Do Commodity Futures Help Forecast Spot Prices?

Author/Editor: Reichsfeld, David A | Roache, Shaun K.
Authorized for Distribution: November 1, 2011
Electronic Access: Free Full Text (PDF file size is 1,052KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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.
 
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Series: Working Paper No. 11/254
Subject(s): Commodity markets | Commodity prices | Economic forecasting | Forecasting models
Author's keyword(s): Asset Pricing | Futures Pricing | Financial Forecasting
 
English  
    Published:   November 1, 2011        
            Format:   Paper
    Stock No:   WPIEA2011254   Pages:   25
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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