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

Yao Zheng

Research output: Contribution to journalArticlepeer-review

6 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 languageEnglish (US)
Pages (from-to)1491-1513
Number of pages23
JournalApplied Financial Economics
Volume24
Issue number23
DOIs
StatePublished - Jan 1 2014

Keywords

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

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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