In this paper, we subject the global fear index (GFI) for the COVID-19 pandemic to empirical scrutiny by examining its predictive power in the predictability of commodity price returns during the pandemic. One of the attractions to the index lies in its coverage as all the countries and by extension regions and territories in the world are considered in the construction of the index. Our results show evidence of a positive relationship between commodity price returns and the global fear index, confirming that commodity returns increase as COVID-19 related fear rises. By way of extension, we further establish that commodity market offers better safe-haven properties than the stock market given the negative association between GFI and the latter. Finally, the GFI series improves the forecast accuracy of the predictive model for commodity price returns and its forecast outcome outperforms the historical average (constant returns) model both for the in-sample and out-of-sample forecasts. Our results are robust to alternative measures of pandemics.
Keywords: Commodity prices; Global fear index; Panel data forecasting; Predictability.
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