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An Anatomy of Commodity Futures Risk PremiaMarta SzymanowskaErasmus University Rotterdam (EUR) - Department of Finance; Erasmus Research Institute of Management (ERIM) Frans De RoonTilburg University - Department of Finance Theo NijmanTilburg University - Center and Faculty of Economics and Business Administration Rob Van den GoorberghAPG Asset Management January 23, 2013 Journal of Finance, Forthcoming AFA 2010 Atlanta Meetings Paper 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 in the high-minus-low sorted portfolios 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.
Number of Pages in PDF File: 73 Keywords: Futures contracts, Commodities, Risk premia, Portfolio sorts JEL Classification: G12, G13 Accepted Paper SeriesDate posted: February 17, 2009 ; Last revised: January 30, 2013Suggested CitationContact Information
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