Forecasting Stock Returns: Do Commodity Prices Help?

Black, Angela J.; Klinkowska, Olga; McMillan, David G.; McMillan, Fiona Jayne

doi:10.2139/ssrn.2467095

Cited by 6 publications

(11 citation statements)

References 34 publications

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“…As the degree of market interdependence deepens, the number of cointegrations should increase to reflect the changes in the market (Rangvid, 2001). On the other hand, the dynamic features of the economic foundations underlying the firm-level stock prices may cause changes in the cointegration space over time (Black et al, 2014). Accordingly, the recursive estimation methodology is applied to test evolution of the cointegration space in the multivariate system.…”

Section: Methodsmentioning

confidence: 99%

“…The large increase in commodity price volatilities can attribute partially to commodities' financialization process (Tang & Xiong, 2012). Over a long horizon, both stock and commodity prices are expected to move in a similar direction as both respond to future economic performances (Black et al, 2014). Therefore, the empirical issue is how the prices of commodities affect the firm-level stock prices.…”

Section: Introductionmentioning

confidence: 99%

“…Following the finance literature where cointegration is frequently applied to assess the degree of interdependence between financial markets (Dimpfl, 2013), we are to apply Johansen's (1991) cointegration techniques to test the interdependence between the four salmon firms' stock prices. However, the statistical relationship between stock prices may change in response to the volatile fundamentals (Serletis & King, 1997;Black et al, 2014). The recursive estimation approach (Hansen & Johansen, 1999;Juselius, 2006) is further employed to examine the evolvement of the interdependence between stock prices.…”

Section: Introductionmentioning

confidence: 99%

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Firm Size, Commodity Price, and Interdependence Between Firm-Level Stock Prices: The Case of Norwegian Salmon Industry

Zhang¹,

Myrland²,

Xie³

2016

AEF

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This study aims to investigate the interdependence between stock prices of salmon firms listed at Oslo Stock Exchange and to evaluate how this correlation is affected by firm size and salmon commodity price. Technically, we apply the Johansen's approach (Johansen, 1991) to test cointegration between stock prices and between individual stock prices and commodity price. The time path of the long-run relationship is further examined by recursive estimations. During the sample period, we fail to confirm a common stochastic trend between the stock prices of salmon firms. This is partly explained by the various responses of firm-level stock prices to the leading firm' stock price, depending on firm size. This may also relate to the differences between salmon stock prices' responses to commodity price.

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Section: Methodsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Firm Size, Commodity Price, and Interdependence Between Firm-Level Stock Prices: The Case of Norwegian Salmon Industry

Zhang¹,

Myrland²,

Xie³

2016

AEF

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“…We test the theoretical prediction that commodity returns contain essential information to forecast stock returns (see Jacobsen et al., 2019 ). Theory suggests that increasing commodity returns are associated with increasing inflation and interest rates, and, consequently, bearish stock markets ( Black et al., 2014 ). Besides, commodities are recognised as safe havens to diversify investments away from equities.…”

Section: Introductionmentioning

confidence: 99%

“…By comparison, the ability of commodity returns to forecast stock returns is not extensively investigated. The main studies considering the role of commodity returns in forecasting stock returns are Black et al. (2014) and Jacobsen et al.…”

Section: Introductionmentioning

confidence: 99%

Stock return predictability over four centuries: The role of commodity returns

Iyke

2021

Finance Research Letters

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Highlights We merge two unique historical datasets on commodity and stock prices covering four centuries and three leading stock markets (Netherlands, UK, and US). Consistent with theoretical predictions, commodity returns can predict stock returns. Specifically, 64% and 56% of the commodity returns can predict stock returns in-sample and out-of-sample, respectively. Commodity returns from agriculture, energy, and livestock and meat markets consistently predict stock returns. These results are robust to recessions and expansions.

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Cross-asset relations, correlations and economic implications

McMillan

2019

Global Finance Journal

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This paper examines the interrelations and time-varying correlations for eight assets. Oneyear rolling correlations reveal that each of the 28 correlations exhibit both positive and negative values. Linear regressions reveal that given macroeconomic and financial variables contain predictive power for different asset return correlations. The term structure of interest rates and consumer sentiment feature as prominent predictor variables. Structural break tests and non-linear regressions indicate a cycling of correlations between high and low risk periods. In seeking to consider the economic content of the interrelations, we construct a safe and risky portfolio and show that the correlation between these portfolios can allow for improved market timing. Further, the safe and risky portfolio returns and correlation exhibit predictive power for macroeconomic conditions and may be used in a leading indicator role. The results presented here should be of interest to investors and policy-makers as well as academics wishing to examine the relations between both asset returns and financial and real markets.

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Forecasting Stock Returns: Do Commodity Prices Help?

Cited by 6 publications

References 34 publications

Firm Size, Commodity Price, and Interdependence Between Firm-Level Stock Prices: The Case of Norwegian Salmon Industry

Firm Size, Commodity Price, and Interdependence Between Firm-Level Stock Prices: The Case of Norwegian Salmon Industry

Stock return predictability over four centuries: The role of commodity returns

Cross-asset relations, correlations and economic implications

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