What Every Investor Should Know About Commodities, Part I: Univariate Return Analysis

Abstract

In this paper we study the univariate return properties of a large variety of commodity futures. Our analysis shows that the volatility of commodity futures is comparable to that of US large cap stocks. Yet, with the exception of energy, a consistently positive risk premium is lacking in commodity futures. We also find that for many commodities, futures returns and volatility can vary considerably over different phases of the business cycle, under different monetary conditions as well as with the shape of the futures curve. Skewness in commodity futures returns is largely insignificant, whereas kurtosis is significantly positive and comparable to that of US large cap stocks. In almost all commodities we find significant degrees of autocorrelation, which affects the properties of longer horizon returns.

Keywords: Commodities, commodity futures, risk premium, volatility, skewness, kurtosis, autocorrelation

JEL Classification: G11, E44, O13, Q19, Q49