Consumption Betas and Backwardation in Commodity Markets

Authors


  • This paper is an extension of part of Chapter I of the author's doctoral dissertation at Stanford University. I would like to thank Robert Litzenberger, the chairman, and Douglas Breeden and Michael Gibbons, the committee members, for their help, comments and encouragement during the course of the original research. The current paper has benefited from the comments of Robert LitzenbergerJ, effrey Ricker and William Sharpe. Any remaininge rrorsa re my sole responsibility.

ABSTRACT

This paper examines the relationship between commodity consumption betas and realized commodity futures contract risk premiums. A linear relationship between risk premiums and consumption betas is developed based on a consumption oriented CAPM. The parameters of this linear model are estimated using fourteen commodities.

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