Szymanowska is with Rotterdam School of Management, Erasmus University; de Roon is with Department of Finance, CentER, Tilburg University; Nijman is with Department of Finance, CentER, Tilburg University; and 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, 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
This article is protected by copyright. All rights reserved
This article has been accepted for publication and undergone full peer review but has not been through the copyediting, typesetting, pagination and proofreading process which may lead to differences between this version and the Version of Record. Please cite this article as doi: 10.1111/jofi.12096.
- 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.
This article is protected by copyright. All rights reserved.