Skip to content

Futures risk premium

HomeMortensen53075Futures risk premium
27.12.2020

18 Apr 2019 We half-jokingly asked in our Managed Futures/Global Macro 2019 Outlook, "Is this asset class working for you?", following a year in which  The hog market contains a short-run time varying risk premium, but futures prices are still efficient predictors of future spot prices. Live cattle markets also show a  21 Sep 2018 Keywords: shale oil, futures, risk premium, hedging, speculation, limits to arbitrage. aWe are very thankful to Riccardo Cristadoro, Lars  30 Dec 2016 This paper undertakes an econometric investigation into the presence of risk premium in commodity futures markets. The statistical tests are  Risk Premia in Crude Oil Futures Prices. James Hamilton1. Jing Cynthia Wu 2. 1University of California, San Diego. 2Booth School of Business, University of 

The historical risk premium is robust across commodity sectors and varies with the state of the economy, inflation and the level of scarcity. Although the majority of contracts are defunct, most commodities have earned a positive risk premium over their lifespan.

“Returns to Traders and Existence of a Risk Premium in Agricultural Futures Markets.” Proceedings of the NCCC-134 Conference on Applied Commodity Price. Abstract: My thesis investigates three major issues related to futures markets namely, market efficiency, risk premium, and information diffusion in futures. This   This paper examines specification issues and estimates diffusive and jump risk premia using S&P futures option prices from 1987 to 2003. We first develop a test   commodity futures risk premium. We focus on speculators' spread positions, and study the asset pricing implications of spreading pressure on the cross-section  For instance, in the case of oil futures, the spot premium reflects oil price risk, while the term premia mainly reflect the risk present in the con- venience yield. Like 

16 Jan 2019 This misunderstanding seems to stem from a confusion of terms like contango, roll yield, Volatility Risk Premium (VRP), and Futures Risk 

Using a novel comprehensive database of 230 commodity futures that traded between 1871 and 2018, we document that futures prices have on average been set at a discount to future spot prices by about 5%. The historical risk premium is robust across commodity sectors and varies with the state of the economy, inflation and the level of scarcity. Crude oil and gold futures risk premia “We find that there is a significant difference between the risk premium in oil futures and the premium in gold futures. On average, the risk premium is negative for oil contracts, while it is positive for gold. Oil and gold have been perceived rather differently in financial markets. 1. Introduction. While commodity futures have moved into the investment mainstream only over the last decade, 2 the academic debate over the existence and source of a commodity futures risk premium has been intense ever since the 1930s. The first hypothesis for the source of a commodity futures risk premium was the risk transfer or hedging pressure hypothesis of Keynes (1930) and Hicks (1939 Risk premium, meanwhile, is usually described as the difference between what investors are willing to pay and what they should be paying if prices weren’t affected by risk, Bain noted.

FINANCIAL FUTURES CONTRACTS AND MARKETS. Given the default risk and liquidity problems in the interest-rate forward market, another solution to hedging  

Risk premium, meanwhile, is usually described as the difference between what investors are willing to pay and what they should be paying if prices weren’t affected by risk, Bain noted. tence and source of a commodity futures risk premium has been intense ever since the 1930s. The first hypothesis for the source of a commodity futures risk premium was the risk transfer or hedging pressure hypothesis of Keynes (1930) and Hicks (1939), where a risk premium accrued to speculators as a reward for accepting the price The Capital Asset Pricing Model (CAPM) modifies the above by quantifying the risk premium that is required to compensate the longs for the risk that they incur by entering a futures contract. So if a commodity poses a higher systematic risk, where its beta is greater than 1, then the future price must be lower than the expected spot price to By going long a futures contract at a discount to the expected spot price, investors should achieve a positive excess return as the futures price converges to the spot price over time. Nicholas Kaldor's ‘theory of storage', from 1939, is an alternative view on the existence of a commodity risk premium. Abstract. 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. tant because the two risk premia are likely to compensate for di§erent risk factors. For instance, in the case of oil futures, the spot premium reflects oil price risk, while the term premia mainly reflect the risk present in the convenience yield. Like risk premia in the

14 Sep 2011 If commercial producers or financial investors use futures contracts to hedge against commodity price risk, the arbitrageurs who take the other 

20 Sep 2019 Although the majority of contracts are defunct, most commodities have earned a positive risk premium over their lifespan. We find empirical  An Anatomy of Commodity Futures Risk Premia (Digest Summary). Marta Szymanowska Frans de Roon Theo Nijman Rob van den Goorbergh Journal of  In this case, the net hedging pressure theory implies that the futures price will be set below the expected future spot price to induce speculators – who do not have. According to Keynes a commodity's futures price should be less than the expected spot price in the future. Why? Because commodity producers seek to use futures  Abstract. This paper analyzes trading strategies which capture the various risk premiums that have been distinguished in futures markets. On the basis of a  A risk premium is the return in excess of the risk-free rate of return that an investment is expected to yield.