The Cross-Section of Commodity Futures Returns PDF Download
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Author: Frans de Roon
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
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Book Description
In this paper we study consumption risk pricing in commodity futures markets. We find that, like stock returns, the conditional Consumption CAPM explains up to 60% of the cross sectional variation in mean futures returns. However, unlike stock returns, using contemporaneous plus future consumption growth reduces the performance of the model. We attribute this result to the fact that for commodities supply changes impact prices and therefore consumption. Consistent with this notion we find that production- and inventory-based factors are significant determinants of the long run risk in commodities markets, which may explain the poor performance of ultimate consumption risk model.
Author: Frans de Roon
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
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Book Description
In this paper we study consumption risk pricing in commodity futures markets. We find that, like stock returns, the conditional Consumption CAPM explains up to 60% of the cross sectional variation in mean futures returns. However, unlike stock returns, using contemporaneous plus future consumption growth reduces the performance of the model. We attribute this result to the fact that for commodities supply changes impact prices and therefore consumption. Consistent with this notion we find that production- and inventory-based factors are significant determinants of the long run risk in commodities markets, which may explain the poor performance of ultimate consumption risk model.
Author: Charoula Daskalaki
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
We explore whether there are common factors in the cross-section of individual commodity futures returns. We test various asset pricing models which have been employed for the equities market as well as models motivated by commodity pricing theories. The use of these families of models allows us also to test whether the commodities and equities market are integrated. In addition, we employ Principal Components factor models which do not require à priori specification of factors. We find that none of the models is successful. Our results imply that commodity markets are segmented from the equities market and they are considerably heterogeneous per se.
Author: Chris Brooks
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
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Book Description
The article examines whether commodity risk is priced in the cross-section of global equity returns. We employ a long-only equally-weighted portfolio of commodity futures and a term structure portfolio that captures phases of backwardation and contango as mimicking portfolios for commodity risk. We find that equity-sorted portfolios with greater sensitivities to the excess returns of the backwardation and contango portfolio command higher average excess returns, suggesting that when measured appropriately, commodity risk is pervasive in stocks. Our conclusions are robust to the addition to the pricing model of financial, macroeconomic and business cycle-based risk factors.
Author: Fan Yang
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
I identify a "slope"' factor in the cross section of commodity futures returns. Low-basis commodity futures have higher loadings on this factor than high-basis commodity futures. This slope factor and a level factor -- an index of commodity futures -- jointly explain most of the average excess returns of commodity futures portfolios sorted by basis. More importantly, I find that this factor is significantly correlated with investment shocks, which represent the technological progress in producing new capital. I investigate a competitive dynamic equilibrium model of commodity production to endogenize this correlation. The model reproduces the cross-sectional futures returns.
Author: Adrian Fernandez-Perez
Publisher:
ISBN:
Category :
Languages : en
Pages : 43
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Book Description
This article studies the relation between the skewness of commodity futures returns and expected returns. A trading strategy that takes long positions in commodity futures with the most negative skew and shorts those with the most positive skew generates significant excess returns that remain after controlling for exposure to well-known risk factors. A tradeable skewness factor explains the cross-section of commodity futures returns beyond exposures to standard risk premia. The impact that skewness has on future returns is explained by investors' preferences for skewness under cumulative prospect theory and selective hedging practices.
Author: Geetesh Bhardwaj
Publisher:
ISBN:
Category : Business cycles
Languages : en
Pages : 0
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Book Description
Gorton and Rouwenhorst (2006) examined commodity futures returns over the period July 1959 to December 2004 based on an equally-weighted index. They found that fully collateralized commodity futures had historically offered the same return and Sharpe ratio as U.S. equities, but were negatively correlated with the return on stocks and bonds. Reviewing these results ten years later, we find that our conclusions largely hold up out-of-sample. The in- and out-of-sample average commodity risk premiums are not significantly different, nor is the cross-sectional relationship between average returns and the basis. Correlations among commodities and commodity correlations with other assets experienced a temporary increase during the financial crisis which is in line with historical experience of variation of these correlations over the business cycle.
Author: Lin Gao
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
The detrended implied volatility of commodity options (VOL) forecasts the cross section of the commodity futures returns significantly. A zero-cost strategy that is long in low VOL and short in high VOL commodities yields an annualized return of 12.66% and a Sharpe ratio of 0.69. Notably, the excess returns based on the volatility strategy emanate mainly from its forecasting power for the future spot component, different from the other commodity strategies examined so far in the literature which are all driven by roll returns. This strategy demonstrates low correlations (below 10%) with the other strategies such as momentum or basis and performs especially well in recessions. Our results are robust after controlling for illiquidity, other commodity pricing factors, and exposure to the aggregate commodity market volatility. The VOL measure is associated with hedging pressure on the futures and especially on the options market. News media also helps amplify the uncertainty impact. Variables related to investors' lottery preferences and market frictions are able to explain part of the predictive relationship.
Author: James Jonathan Weselake
Publisher:
ISBN:
Category :
Languages : en
Pages : 236
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Book Description
Author: Devraj Basu
Publisher:
ISBN:
Category :
Languages : en
Pages : 37
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Book Description
We construct long-short factor mimicking portfolios that capture the hedging pressure risk premium of commodity futures. We consider single sorts based on the open interests of either hedgers or speculators, as well as double sorts based on both positions. The long-short hedging pressure portfolios are priced cross-sectionally and offer Sharpe ratios that systematically exceed those of long-only benchmarks. Further tests show that the hedging pressure risk premiums rise with the volatility of commodity futures markets and that the predictive power of hedging pressure over cross-sectional commodity futures returns is different from the previously documented forecasting power of past returns and the slope of the term structure.
Author: Frank J. Fabozzi
Publisher: John Wiley & Sons
ISBN: 0470293209
Category : Business & Economics
Languages : en
Pages : 986
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Book Description
Filled with a comprehensive collection of information from experts in the commodity investment industry, this detailed guide shows readers how to successfully incorporate commodities into their portfolios. Created with both the professional and individual investor in mind, The Handbook of Commodity Investments covers a wide range of issues, including the risk and return of commodities, diversification benefits, risk management, macroeconomic determinants of commodity investments, and commodity trading advisors. Starting with the basics of commodity investments and moving to more complex topics, such as performance measurement, asset pricing, and value at risk, The Handbook of Commodity Investments is a reliable resource for anyone who needs to understand this dynamic market.
