Marta Szymanowska is with Rotterdam School of Management, Erasmus University; Frans de Roon is with Department of Finance, CentER, Tilburg University; Theo Nijman is with Department of Finance, CentER, Tilburg University; and Rob van den Goorbergh is with APG. We thank the Editor (Cam Harvey); the Associate Editor; the referees; Lieven Baele; Hendrik Bessembinder; Frank de Jong; Michel Robe; Geert Rouwenhorst; Jenke Ter Horst; Chris Veld; Marno Verbeek; conference participants at the American Finance Association (AFA) 2010 Annual Meeting and Inquire UK 2009 Autumn Meeting; and seminar participants at the Katholieke Universiteit (KU) Leuven, Commodity Futures Trading Commission (CFTC), Norwegian School of Management – BI, Rotterdam School of Management, Erasmus University, and University of Piraeus for helpful comments.
An Anatomy of Commodity Futures Risk Premia
Article first published online: 7 JAN 2014
© 2013 the American Finance Association
The Journal of Finance
Volume 69, Issue 1, pages 453–482, February 2014
How to Cite
SZYMANOWSKA, M., DE ROON, F., NIJMAN, T. and VAN DEN GOORBERGH, R. (2014), An Anatomy of Commodity Futures Risk Premia. The Journal of Finance, 69: 453–482. doi: 10.1111/jofi.12096
- Issue published online: 7 JAN 2014
- Article first published online: 7 JAN 2014
- Accepted manuscript online: 22 AUG 2013 02:58PM EST
- Manuscript Accepted: 21 JUN 2013
- Manuscript Received: 22 SEP 2011
We identify two types of risk premia in commodity futures returns: spot premia related to the risk in the underlying commodity, and term premia related to changes in the basis. Sorting on forecasting variables such as the futures basis, return momentum, volatility, inflation, hedging pressure, and liquidity results in sizable spot premia between 5% and 14% per annum and term premia between 1% and 3% per annum. We show that a single factor, the high-minus-low portfolio from basis sorts, explains the cross-section of spot premia. Two additional basis factors are needed to explain the term premia.