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The Stock Market Price of Commodity Risk
Martijn Boons
Tilburg University - Department of Finance
Frans De Roon
Tilburg University - Department of Finance
Marta Szymanowska
Erasmus 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 series
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Date posted: March 18, 2011
; Last revised: September 28, 2012
Suggested CitationBoons, Martijn, De Roon, Frans A. and Szymanowska, Marta, The Stock Market Price of Commodity Risk (September 28, 2012). AFA 2012 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1785728 or http://dx.doi.org/10.2139/ssrn.1785728
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