The linkage between aggregate stock market investor sentiment and commodity futures returns

Yao Zheng

doi:10.1080/09603107.2014.925073

The linkage between aggregate stock market investor sentiment and commodity futures returns

Yao Zheng

James M. Hull College of Business

Research output: Contribution to journal › Article › peer-review

12 Scopus citations

Abstract

This article investigates the predictive content of aggregate stock market investor sentiment on the returns of commodity futures. The sample consists of four subcategories: agricultural, livestock, energy and metal futures, for a total of 26 commodity futures spanning from the period 1968 to 2010. Overall, commodity futures perform better when investor sentiment is pessimistic rather than optimistic. The asymmetrical response to sentiment shocks may partially account for this difference. Cross-sectional analysis indicates a persistent negative relationship between investor sentiment and commodity futures returns, even after controlling for the effects of liquidity and open interest. Additional analysis shows that when conditional volatilities are high, the negative relationship between investor sentiment and commodity futures returns becomes more pronounced.

Original language	English (US)
Pages (from-to)	1491-1513
Number of pages	23
Journal	Applied Financial Economics
Volume	24
Issue number	23
DOIs	https://doi.org/10.1080/09603107.2014.925073
State	Published - Dec 1 2014

Keywords

Markov regime-switching
VAR-GARCH-M
commodity futures
investor sentiment

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1080/09603107.2014.925073

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abstract = "This article investigates the predictive content of aggregate stock market investor sentiment on the returns of commodity futures. The sample consists of four subcategories: agricultural, livestock, energy and metal futures, for a total of 26 commodity futures spanning from the period 1968 to 2010. Overall, commodity futures perform better when investor sentiment is pessimistic rather than optimistic. The asymmetrical response to sentiment shocks may partially account for this difference. Cross-sectional analysis indicates a persistent negative relationship between investor sentiment and commodity futures returns, even after controlling for the effects of liquidity and open interest. Additional analysis shows that when conditional volatilities are high, the negative relationship between investor sentiment and commodity futures returns becomes more pronounced.",

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The linkage between aggregate stock market investor sentiment and commodity futures returns

Abstract

Keywords

ASJC Scopus subject areas

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