Working Paper: NBER ID: w15830
Authors: Menzie D. Chinn; Olivier Coibion
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.
Keywords: No keywords provided
JEL Codes: G13; Q43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Market depth (G10) | Unbiased futures prices (G13) |
| Futures prices (G13) | Changes in future spot prices (G13) |
| Increased trading volumes (G15) | Efficiency of futures markets (G13) |
| Futures prices (G13) | Outperform random walk predictions (G17) |
| Energy futures prices (Q47) | Future spot prices (G13) |
| Futures prices (G13) | Future spot prices (G13) |