Do Spot Prices Predict Future Futures Prices?

Futures prices reflect the price that both the buyer and the seller agree will be the price of a commodity upon delivery. Therefore, these prices provide direct information about investor’s expectations about the future price of the commodity of interest. This purpose of this research is two-fold. First, the research investigates the predictive accuracy and biasedness of futures prices predictions from reverse regression using in-sample criteria as well as from the performance of the models based upon ex post forecasts generated by alternative time series models. Second, following earlier investigations, an effort is made to understand the extent to which the spot energy (oil) price contains information content in the current period useful for predicting the forward-looking variable. The working hypothesis is that both own-commodity spot prices and spot energy (oil) prices are significant predictors of future commodity prices at alternative leads (lags).