Do futures prices help forecast the spot price?

Research output: Contribution to journalArticle

3 Citations (Scopus)
6 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

Fingerprint

Futures prices
Spot price
Benchmark
Forecasting accuracy
Commodities
Market data
Information model
Unobserved components model
Oil markets

Keywords

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

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics, Econometrics and Finance(all)

Cite this

Do futures prices help forecast the spot price? / Jin, Xin.

In: Journal of Futures Markets, Vol. 37, No. 12, 12.2017, p. 1205-1225.

Research output: Contribution to journalArticle

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