An anatomy of commodity futures risk premia

M. Szymanowska, F.A. de Roon, T.E. Nijman, R.W.J. van den Goorbergh

Research output: Contribution to journalArticleScientificpeer-review

106 Citations (Scopus)

Abstract

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.
Original languageEnglish
Pages (from-to)453-482
JournalJournal of Finance
Volume69
Issue number1
DOIs
Publication statusPublished - Feb 2014

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