Commodity network and predictable returns

We investigate the lead-lag relation in the cross-section of commodity returns. We estimate dynamic and directional networks for 32 commodities and then construct a new predictor termed commodity network momentum, exploring cross-commodity information spillover. Network momentum positively and significantly predicts future commodity returns, controlling for existing commodity characteristics. Unlike previous lead-lag studies, the predictive relation is consistent with overreaction rather than underreaction. The relation is stronger for attention-grabbing commodities and commodities with lottery-like properties and with higher limits to arbitrage. Extrapolation from connected commodities contributes to this predictive relation. Overall, our paper highlights the role of information spillover in commodity return predictability.