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The Stock Market Price of Commodity RiskMartijn BoonsTilburg University - Department of Finance Frans De RoonTilburg University - Department of Finance Marta SzymanowskaErasmus University Rotterdam (EUR) - Department of Finance; Erasmus Research Institute of Management (ERIM) September 28, 2012 AFA 2012 Chicago Meetings Paper Abstract: We find that commodity risk is priced in the cross section of US stock returns. Following the Commodity Futures Modernization Act (CFMA) in 2000, investors can hedge commodity price risk directly in the futures market, primarily via commodity index investments, whereas before the CFMA they could gain commodity exposure mainly via the stock market. As a result, we find that the stock market price of commodity risk changes from -5.5% per year pre-CFMA to 8.5% per year post-CFMA. Both time-series and cross-sectional regressions show that the commodity risk premium is separate from the traditional market, small-minus-big, high-minus-low, and momentum factors.
Number of Pages in PDF File: 63 Keywords: Asset pricing, Commodity futures markets ,Commodity index investment, Commodity risk premium, Hedging JEL Classification: G11, G12, G13 working papers seriesDate posted: March 18, 2011 ; Last revised: September 28, 2012Suggested CitationContact Information
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