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Financialization of Agricultural Commodity Markets: Do Financial Data Help to Forecast Agricultural Prices

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  • Etienne, Xiaoli

Abstract

The dramatic rise in commodity index investment have made many market analysts and researchers believe that commodity markets have undergone a financialization process that forged a closer link between commodity and financial markets. I empirically test whether this hypothesis is true in a forecasting context by using high-frequency financial data to forecast monthly US corn prices. Specific financial series examined include the Baltic Dry Index, the US exchange rate, the Standard and Poor’s 500 market index, the 3-month US Treasury bill interest rate, and crude oil futures prices. Using a recently developed statistical model that deals with mixed-frequency data, I find that while some improvements may be made when including high-frequency financial data in the forecasting model, the improvements in mean-squared prediction error and directional accuracy using such models are minimal, and that models generated from random walk and autoregressive models perform satisfactory well compared to more complicated models.

Suggested Citation

  • Etienne, Xiaoli, 2015. "Financialization of Agricultural Commodity Markets: Do Financial Data Help to Forecast Agricultural Prices," 2015 Conference, August 9-14, 2015, Milan, Italy 211626, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae15:211626
    DOI: 10.22004/ag.econ.211626
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    More about this item

    Keywords

    Agribusiness; Agricultural Finance;

    JEL classification:

    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C00 - Mathematical and Quantitative Methods - - General - - - General

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