Fear in commodity return prediction

Stock variance, which is the sum of squared daily returns on the S&P 500, implies the level of investor fear in stock market and performs well at predicting the return of index commodity futures. This prediction still holds after controlling for the sample period and macroeconomic variables. Also, the fear index performs very well at predicting index commodity futures returns out-of-sample, and the asset allocation exercise based on predictive regressions also shows that stock variance generates economic performance. The results remain robust while considering different macroeconomic conditions, such as recession (expansion), contango (backwardation), or inflation up (down).