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The linkage between aggregate stock market investor sentiment and commodity futures returns

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  • Yao Zheng

Abstract

This article investigates the predictive content of aggregate stock market investor sentiment on the returns of commodity futures. The sample consists of four subcategories: agricultural, livestock, energy and metal futures, for a total of 26 commodity futures spanning from the period 1968 to 2010. Overall, commodity futures perform better when investor sentiment is pessimistic rather than optimistic. The asymmetrical response to sentiment shocks may partially account for this difference. Cross-sectional analysis indicates a persistent negative relationship between investor sentiment and commodity futures returns, even after controlling for the effects of liquidity and open interest. Additional analysis shows that when conditional volatilities are high, the negative relationship between investor sentiment and commodity futures returns becomes more pronounced.

Suggested Citation

  • Yao Zheng, 2014. "The linkage between aggregate stock market investor sentiment and commodity futures returns," Applied Financial Economics, Taylor & Francis Journals, vol. 24(23), pages 1491-1513, December.
    • Handle: RePEc:taf:apfiec:v:24:y:2014:i:23:p:1491-1513
    DOI: 10.1080/09603107.2014.925073
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    Cited by:

    1. Soni, Rajat Kumar & Nandan, Tanuj, 2022. "Modeling Covid-19 contagious effect between asset markets and commodity futures in India," Resources Policy, Elsevier, vol. 79(C).
    2. Sercan Demiralay & Selcuk Bayraci & H. Gaye Gencer, 2019. "Time-varying diversification benefits of commodity futures," Empirical Economics, Springer, vol. 56(6), pages 1823-1853, June.
    3. Ji, Qiang & Liu, Bing-Yue & Nehler, Henrik & Uddin, Gazi Salah, 2018. "Uncertainties and extreme risk spillover in the energy markets: A time-varying copula-based CoVaR approach," Energy Economics, Elsevier, vol. 76(C), pages 115-126.

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