Do futures prices help forecast the spot price?

Research output: Contribution to journalArticle

4 Citations (Scopus)
8 Downloads (Pure)

Abstract

This paper proposes a futures-based unobserved components model for commodity spot prices. Prices quoted at the same time incorporate the same information, but are affected differently, resulting in the different shapes of futures curves. This model utilizes information from part of the futures curve to improve forecasting accuracy of the spot price. Applying this model to oil market data, I find that the model forecasts outperform the literature benchmark (the no-change forecast) and futures prices forecasts in multiple dimensions, with smaller average error variation over the sample period and higher chance of smaller absolute error in each period.
Original languageEnglish
Pages (from-to)1205-1225
Number of pages21
JournalJournal of Futures Markets
Volume37
Issue number12
Early online date5 Jun 2017
DOIs
Publication statusPublished - Dec 2017

Keywords

  • forecasting
  • commodities
  • spot price
  • futures price
  • futures curve
  • unobserved components model
  • stochastic process

Fingerprint Dive into the research topics of 'Do futures prices help forecast the spot price?'. Together they form a unique fingerprint.

  • Cite this