Commodity Pricing : Time-Varying Discount Rates vs. Investors’ Heterogeneity

On the 30th anniversary of the seminal article by Pindyck (1993), we re-evaluate the evidence for the classical rational model of commodity prices, extending it to admit time- varying discount rates, investors’ heterogeneity or both. Discount factors specifications are flexible enough to allow for equity-like volatility. Heterogeneous investors differ in terms of either horizon or rationality. In our empirical study, we examine a total of 15 commodities covering agriculture, softs, energy and metals and a sample period from 1986 to 2022. Investors’ heterogeneity proves much more important than time-varying discount rates in explaining the volatility of these commodities over our sample period