Do Commodity Futures Help Forecast Spot Prices?

IMF Working Papers, November 1, 2011

Source details

Study assesses the spot price forecasting performance of 10 commodity futures at various horizons up to two years.
In-sample tests reject efficient markets.
Out-of-sample, the forecast from the futures market is hard to beat.
Forecasting performance of futures does not depend on the slope of the futures curve.
Forecasting performance of futures is invariant to whether prices are in an upswing or downswing.

Assets analyzed: 10 commodity futures.
Forecast horizons considered: up to two years.
Tests performed: in-sample efficiency tests and out-of-sample forecast comparisons.
Page length: 25 pages.
Series and identifiers: Working Paper No. 2011/254; Volume: 2011; Issue: 254; DOI: https://doi.org/10.5089/9781463923891.001; ISBN: 9781463923891; ISSN: 1018-5941.
Publication date: November 1, 2011.

Performance assessed across different slopes of the futures curve; no dependence found between slope and forecasting accuracy.
Performance assessed across market phases (upswing vs downswing); no difference found, casting doubt on the hypothesis that uninformed investors in bull markets impede price discovery.

Rejection of market efficiency in-sample suggests predictable components exist in historical data, but practical forecasting gains are limited given out-of-sample results showing futures forecasts are difficult to outperform.
The lack of dependence on futures-curve slope challenges predictions of well-known commodity market models that link risk premia or predictability to curve slope.
Invariance across up/down market phases suggests price discovery via futures remains effective even during bull markets with increased uninformed participation.

Source: Do Commodity Futures Help Forecast Spot Prices? — IMF Working Papers 2011, 254 (November 1, 2011).