Template-type: ReDIF-Paper 1.0
Author-Name: Massimo Guidolin
Author-Name: Manuela Pedio
Title: Forecasting Commodity Futures Returns: An Economic Value Analysis of Macroeconomic vs. Specific Factors
Abstract: We test whether three well-known commodity-specific variables (basis, hedging pressure, and momentum) may improve the predictive power for commodity futures returns of models otherwise based on macroeconomic factors. We compute recursive, out-of-sample forecasts for fifteen monthly commodity futures return series, when estimation is based on a stepwise regression approach under a probability-weighted regime-switching regression that identifies different volatility regimes. Comparisons with an AR(1) benchmark show that the inclusion of commodity-specific factors does not improve the forecasting power. We perform a back-testing exercise of a meanvariance investment strategy that exploits any predictability of the conditional risk premium of commodities, stocks, and bond returns, also taking into account transaction costs caused by portfolio rebalancing. The risk-adjusted performance of this strategy does not allow us to conclude that any forecasting approach outperforms the others. However, there is evidence that investment strategies based on commodity-specific predictors outperform the remaining strategies in the high-volatility state.
Classification-JEL:
Keywords:
Length: 41 pages 
Number: 1886
Creation-Date: 2018
File-URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp1886.pdf
File-Format: application/pdf
File-Size: 3809
Handle: RePEc:baf:cbafwp:cbafwp1886