El Niño, La Niña, and Forecastability of the Realized Variance of Agricultural Commodity Prices: Evidence from a Machine Learning Approach

Matteo Bonato, Oguzhan Cepni, Rangan Gupta*, Christian Pierdzioch

*Corresponding author for this work

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Abstract

We examine the predictive value of El Niño and La Niña weather episodes for the subsequent realized variance of 16 agricultural commodity prices. To this end, we use high-frequency data covering the period from 2009 to 2020 to estimate the realized variance along realized skewness, realized kurtosis, realized jumps, and realized upside and downside tail risks as control variables. Accounting for the impact of the control variables as well as spillover effects from the realized variances of the other agricultural commodities in our sample, we estimate an extended heterogeneous autoregressive (HAR) model by means of random forests to capture in a purely data-driven way potentially nonlinear links between El Niño and La Niña and the subsequent realized variance. We document such nonlinear links, and that El Niño and La Niña increase forecast accuracy, especially at longer forecast horizons, for several of the agricultural commodities that we study in this research.
Original languageEnglish
JournalJournal of Forecasting
Volume42
Issue number4
Pages (from-to)785-801
Number of pages17
ISSN0277-6693
DOIs
Publication statusPublished - Jul 2023

Keywords

  • Agricultural commodities
  • El Niño and La Niña
  • Forecasting
  • Random forests
  • Realized variance

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