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Market sentiment in commodity futures returns

Author

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  • Gao, Lin
  • Süss, Stephan

Abstract

We identify a strong presence of sentiment exposure in commodity futures returns. Sentiment is able to provide additional explanatory power for comovement among commodity futures beyond the macro- and equity-related sources. Commodity futures with low open interest growth, high volatilities, low momentum, or low futures basis are more sensitive to change in sentiment. Similar to Baker and Wurgler (2006), we construct a market sentiment index by Partial Least Squares regressions (PLS) with non-return based stock market proxies, in particular higher moments of the option implied return distribution. Moreover, our sentiment index can be built on a daily basis.

Suggested Citation

  • Gao, Lin & Süss, Stephan, 2015. "Market sentiment in commodity futures returns," Journal of Empirical Finance, Elsevier, vol. 33(C), pages 84-103.
    • Handle: RePEc:eee:empfin:v:33:y:2015:i:c:p:84-103
    DOI: 10.1016/j.jempfin.2015.07.001
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    More about this item

    Keywords

    Commodity futures; Market sentiment; Comovement;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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