Estimating the Term Structure of Commodity Market Preferences

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Abstract

The commodity futures curve is viewed as a market-based path forecast, a term structure, optimizing multivariate loss preferences. Based on the forecast decision setting, we apply estimation of flexible multivariate loss functions, which reveal the preference term structure along the futures curve, which can be flat, smoothly sloping or oscillating, rotating among optimism, pessimism and symmetry. Evidence
from the thirty main world commodities around the global crisis period, accommodates the futures curve forecast rationality questioned in the literature, suggesting the presence of joint preference asymmetries for longer maturities and symmetries for shorter ones. This reveals joint optimistic preferences for most commodities until 2004, evolving into oscillating preferences rotating within the term structure from symmetry to pessimism and optimism in 2005-2008 and finally back to weaker
optimism until 2013.
Original languageEnglish
Pages (from-to)1146-1163
JournalEuropean Journal of Operational Research
Volume282
Issue number3
DOIs
Publication statusPublished - 11 Oct 2019

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