Abstract
AbstractThis study investigates the lead–lag effects between product futures and raw material futures. Results show that returns on product futures lead returns on raw material futures: lagged product futures returns can significantly predict raw material futures returns in‐ and out‐of‐sample. This product‐material lead–lag effect is mainly driven by bad news and is a short‐term phenomenon. Moreover, returns on product futures, especially those based on bad news, can provide substantial economic gains to investments in raw material futures. The lead–lag effect is associated with frictions in the information diffusion from product futures markets to raw material futures markets and the slower response of raw material futures markets to common market information.
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