Determinants of Commodity Futures Prices: Decomposition Approach. (4th October 2021)

• Record Type: Journal Article
• Authors: Antwi, Emmanuel; Gyamfi, Emmanuel N.; Kyei, Kwabena; Gill, Ryan; Adam, Anokye M.
• Other Names: Li Yuxing Academic Editor.
• Is Part Of: Mathematical problems in engineering. Volume 2021(2021)
• Publication Date: 2021-10-04
• Subjects: Engineering mathematics -- Periodicals; 510.2462
• DOI: 10.1155/2021/6032325
• Languages: English
• ISSNs: 1024-123X

Abstract

Abstract : Developing models to analyze time series is a very sophisticated, time-consuming, but interesting experience for researchers. Commodity price component determination is challenging due to remarkable price volatility, uncertainty, and complexity in the futures market. This study aims to determine the components that drive the market price of commodity futures. This study utilized the decomposition methods, empirical mode decomposition (EMD), and variational mode decomposition (VMD), to analyze three commodity futures prices data: corn from agricultural products, crude oil from energy, and gold from industrial metal. We applied these techniques to decompose the daily data of each commodity price from different periods and frequencies into individual intrinsic mode functions for EMD and modes for VMD. We used the hierarchical clustering method and Euclidean distance approach to classify the IMFs and modes into high-frequency, low-frequency, and trend. Next, applying statistical measures, particularly, the Pearson product-moment correlation coefficient, Kendall rank correlation, and Spearman rank correlation coefficient, we observed that the trend and low-frequency parts of the market price are the main drivers of commodity futures markets' price fluctuations. The low-frequencies are caused by special events. In a nutshell, commodity futures prices are affected by economic development rather than short-lived market variations caused by ordinary disequilibrium of supply-demand.