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Fear in commodity return prediction

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Listed:
  • Cao, Zhen
  • Han, Liyan
  • Wei, Xinbei
  • Zhang, Qunzi

Abstract

Stock variance, which is the sum of squared daily returns on the S&P 500, implies the level of investor fear in stock market and performs well at predicting the return of index commodity futures. This prediction still holds after controlling for the sample period and macroeconomic variables. Also, the fear index performs very well at predicting index commodity futures returns out-of-sample, and the asset allocation exercise based on predictive regressions also shows that stock variance generates economic performance. The results remain robust while considering different macroeconomic conditions, such as recession (expansion), contango (backwardation), or inflation up (down).

Suggested Citation

  • Cao, Zhen & Han, Liyan & Wei, Xinbei & Zhang, Qunzi, 2022. "Fear in commodity return prediction," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004773
    DOI: 10.1016/j.frl.2021.102502
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    Cited by:

    1. Qi Xu & Yang Ye, 2023. "Commodity network and predictable returns," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(10), pages 1423-1449, October.
    2. Liyan Han & Xinbei Wei & Sen Yan & Qunzi Zhang, 2022. "Analyst rating matters for index futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(11), pages 2084-2100, November.
    3. Evrim Mandaci, Pınar & Azimli, Asil & Mandaci, Nazif, 2023. "The impact of geopolitical risks on connectedness among natural resource commodities: A quantile vector autoregressive approach," Resources Policy, Elsevier, vol. 85(PA).

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