Commodity Markets, Long-Run Predictability, and Intertemporal Pricing

Can commodity futures risk factors predict economic growth?

“…They report that commodity futures prices contain information about the global economy but predictability of commodity markets (for the equity market) may vary across countries depending on a country's macroeconomic fundamentals. The significant predictive power of the carry factor is partially consistent with Fernandez‐Perez et al (2017) but they do not distinguish the spot and term premia (nearby and spreading returns on the carry portfolio). Our results additionally imply that the significant predictive power of the carry factor mainly comes from the term premium.…”

“…More recently, using open interests, Hong and Yogo (2012) show that commodity futures markets have information about the future states and thus can predict the stock market returns. Fernandez‐Perez, Fuertes, and Miffre (2017) and Alves and Szymanowska (2019) also empirically show the commodity futures' predictability of future economic growth. These studies suggest that information about the future economic states is likely to be reflected in (commodity) futures markets first, and then disseminated to other asset markets, such as stock markets.…”

“…More specifically, they examine whether a risk factor can forecast long‐term stock market returns and variance, which can represent the distribution of future investment opportunities. Motivated by Maio and Santa‐Clara, Fernandez‐Perez et al (2017) investigate whether three commodity futures risk factors—the term structure factor (which is equal to our basis nearby factor) and hedging pressure and momentum factors—can predict future long‐term equity market returns and variance, along with future GDP growth. They report that these three factors show consistency in forecasting future market returns, market variance, and GDP growth.…”

“…We further test whether the factors exhibit consistency in forecasting future investment opportunities, following Maio and Santa‐Clara (2012) and Fernandez‐Perez et al (2017). Our empirical findings provide rather weak but consistent evidence for the short‐term predictors and .…”

Investor Sentiment and Credit Default Swap Spreads During the Global Financial Crisis

“…Very recent literature documents that realized volatility can serve as a better measure for the true latent volatility (see, e.g., Fernandez‐Perez, Fuertes, & Miffre, ). By summing sufficiently finely sampled high‐frequency returns, it is possible to construct ex post realized volatility measures for integrated latent volatilities that are asymptotically free of measurement error.…”