Can commodity futures risk factors predict economic growth?

Jangkoo Kang, Kyung Yoon Kwon

Research output: Contribution to journalArticle

Abstract

This paper examines whether commodity futures risk factors can predict future economic growth. We test risk factors capturing various spot or term premia and find that only three factors capturing term premia on the basis-momentum, basis, and change in slope are robust predictors for future economic growth, especially for long horizons. Our findings highlight the importance of the term premia, rather than the spot premia on which the literature has mainly focused. Moreover, we find that possible explanations for predictability of commodity factors – the intertemporal asset pricing model and information diffusion explanation – are all inconsistent with our empirical results.
Original languageEnglish
JournalJournal of Futures Markets
Early online date1 Sep 2020
DOIs
Publication statusE-pub ahead of print - 1 Sep 2020

Keywords

  • basis
  • commodity futures
  • economic growth
  • ICAPM
  • momentum
  • term premia

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