Economics, Econometrics and Finance
4 years ago

Commodity funds predict market returns, changing investment strategies forever.

RePEc: Research Papers in Economics
The Relationship between Commodity Markets and Commodity Mutual Funds: A Wavelet-Based Analysis
Nikolaos Antonakakis, Tsangyao Chang, Juncal Cuñado, Rangan Gupta

Paper Summary

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The study looked at how commodity mutual funds and commodity markets are related from 1997 to 2015. Traditional tests didn't show a clear connection, but when using wavelets to analyze the data, a positive relationship was found in the short-term and from 2008 to 2015. Specifically, fund flows predicted returns from 2008 to 2012, but then the causality switched. This shows that a time-varying approach is important when studying commodity returns and flows, especially when dealing with nonlinearity and structural breaks.