Are Commodity Futures Prices Barometers of the Global Economy?
This paper analyzes whether commodity futures prices traded in the United States reveal information relevant to stock prices of East Asian economies including China, Japan, Hong Kong, South Korea, and Taiwan. We find significant and positive predictive powers of overnight futures returns of copper and soybeans, albeit not crude oil, for stock prices of all these East Asian economies and across a broad range of industries after mid-2000s. Our analysis establishes commodity futures prices as barometers of global economic strength in recent years, but leaves open a deeper issue regarding whether through this informational channel noise from futures market trading can feed back to the real economy.
This paper is prepared for Après le Déluge: Finance and the Common Good after the Crisis, edited by E. Glen Weyl, Edward L. Glaeser, and Tano Santos. We are grateful to Mark Aguiar, Ing-haw Cheng, Ed Glaeser, Lutz Kilian, Tano Santos, and Jose Scheinkman for helpful comments. Xiong acknowledges financial support from Smith Richardson Foundation grant #2011-8691. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.