TY - JOUR
T1 - Forecasting Base Metal Prices with an International Stock Index
AU - Pincheira-Brown, Pablo
AU - Hardy, Nicolás
AU - Henrriquez, Cristobal
AU - Tapia, Ignacio
AU - Bentancor, Andrea
N1 - Publisher Copyright:
© 2023, Faculty of Social Sciences. All rights reserved.
PY - 2023
Y1 - 2023
N2 - In this paper, we show that the MSCI ACWI Metals and Mining Index has the ability to predict base metal returns. We use both in-sample and out-of-sample exercises to conduct such examinations. The theoretical underpinning of these results relies on the present-value model for stock-price determination. This model has the implication of Granger causality from stock prices to their key determinants (fundamentals). In the case of metal and mining producers, one of the key elements determining the value of these firms is the price of the commodity they produce and export. Our results are consistent with this theoretical framework, as forecasts based on a model including the MSCI index outperform forecasts that do not use the information contained in that index. Furthermore, in most of our exercises, models equipped with the MSCI Index fare better than models that use the information of equity indices from major commodity exporting countries. We assess predictive ability considering different criteria, such as Mean Squared Prediction Error, Correlations with the target variable and returns from trading strategies.
AB - In this paper, we show that the MSCI ACWI Metals and Mining Index has the ability to predict base metal returns. We use both in-sample and out-of-sample exercises to conduct such examinations. The theoretical underpinning of these results relies on the present-value model for stock-price determination. This model has the implication of Granger causality from stock prices to their key determinants (fundamentals). In the case of metal and mining producers, one of the key elements determining the value of these firms is the price of the commodity they produce and export. Our results are consistent with this theoretical framework, as forecasts based on a model including the MSCI index outperform forecasts that do not use the information contained in that index. Furthermore, in most of our exercises, models equipped with the MSCI Index fare better than models that use the information of equity indices from major commodity exporting countries. We assess predictive ability considering different criteria, such as Mean Squared Prediction Error, Correlations with the target variable and returns from trading strategies.
KW - base metal equity securities
KW - base metals
KW - commodities
KW - forecasting
KW - out-of-sample comparison
KW - univariate time-series models
UR - http://www.scopus.com/inward/record.url?scp=85173792746&partnerID=8YFLogxK
U2 - 10.32065/CJEF.2023.03.03
DO - 10.32065/CJEF.2023.03.03
M3 - Article
AN - SCOPUS:85173792746
SN - 0015-1920
VL - 73
SP - 277
EP - 302
JO - Finance a Uver - Czech Journal of Economics and Finance
JF - Finance a Uver - Czech Journal of Economics and Finance
IS - 3
ER -