Abstract
This study 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 language | English |
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Pages (from-to) | 1205-1225 |
Number of pages | 21 |
Journal | Journal of Futures Markets |
Volume | 37 |
Issue number | 12 |
DOIs | |
Publication status | Published - Dec 2017 |
Externally published | Yes |