K. Geert Rouwenhorst
Yale School of Management - International Center for Finance
Renmin University of China
June 7, 2012
Yale ICF Working Paper No. 06-12
This paper reviews the literature on commodities from the perspective of an investor. We re-examine some of the early papers in the literature using recent data, and find that the empirical support for the Theory of Normal Backwardation as an explanation for the commodity risk premium is weak, and that the evidence is more consistent with storage decisions. We then review the behaviour of the main participants in the commodity futures markets with a particular focus on their impact on prices. While there is continued disagreement in the literature about the role of speculative activity, our results show that money managers are generally momentum (positive feedback) traders, while producers are net short and contrarian (negative feedback) traders. There is less evidence that index traders and swap dealers trade based on past futures returns.
Number of Pages in PDF File: 31
Keywords: Commodity futures, Theory of Storage, Theory of Normal Backwardation, Risk premium, Trader positions
JEL Classification: G13
Date posted: June 8, 2012 ; Last revised: August 10, 2012
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