Investing in Commodity Futures Markets: Can Pricing Models Help?
European Journal of Finance, Vol. 18, No. 1-2, 2012
41 Pages Posted: 27 Feb 2009 Last revised: 24 Apr 2012
Date Written: November 1, 2008
Abstract
This paper empirically investigates whether continuous time spot price models are able to help to reveal mispriced commodity futures contracts. Mispricings are identified based on the difference between model and observed prices, using four different models for four different markets, namely the crude oil, copper, silver, and the gold markets. Model residuals are found to carry information content for future price movements in excess of the overall market. Residual based investment strategies yield significant excess returns, particularly for the relatively small-sized copper and silver markets.
Keywords: Commodity Investment, Futures, Crude Oil, Copper, Silver, Gold
JEL Classification: G13, G14, G11
Suggested Citation: Suggested Citation