The Impact of El Niño-Southern Oscillation on Commodity Futures Indices

Abstract: The influence of both phases of El Niño-Southern Oscillation (ENSO) on commodity futures index returns is evaluated for the period between 1970 and 2016. Additionally, the potential of ENSO related trading is examined. Associations of the Oceanic Niño Index (ONI) with commodity index returns are studied by Granger causality tests, ordinary least squared regressions and a mean return analysis approach. In general, the results of the effect measurements indicate the existence of larger and statistically more significant effects during La Niña phases for most of the commodities. Surprisingly, El Niño effects show relatively low statistical significance in measured effects. Historical performance tests of ONI triggered trading strategies with varying holding periods indicate potential to exploit ENSO related effects especially for short investments.