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Predictability of structural co-movement in commodity prices: the role of technical indicators

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This paper investigates the financialization and structural co-movement of several commodity futures using factor variance decomposition and predictability of technical indicators and macro variables. We find that financialization is still… Click to show full abstract

This paper investigates the financialization and structural co-movement of several commodity futures using factor variance decomposition and predictability of technical indicators and macro variables. We find that financialization is still a dominant player in the commodity market and that recent commodity price fluctuations can be significantly and robustly forecasted by technical analyses of commodity index investments. Moreover, the co-movement of commodities is demonstrated by variance decomposition and explained as commodity index investment, which provides evidence of financialization. The overall empirical analysis reveals that technical indicators and macro variables can statistically and economically forecast the indexed investment and off-index trading, respectively, which indicates that they are suitable predictors of the commodity markets.

Keywords: predictability structural; movement commodity; technical indicators; structural movement; commodity

Journal Title: Quantitative Finance
Year Published: 2017

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