73 Pages Posted: 17 Feb 2009 Last revised: 11 May 2014
Date Written: January 23, 2013
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.
Keywords: Futures contracts, Commodities, Risk premia, Portfolio sorts
JEL Classification: G12, G13
Suggested Citation: Suggested Citation
Szymanowska, Marta and de Roon, Frans and Nijman, Theo and van den Goorbergh, Rob, An Anatomy of Commodity Futures Risk Premia (January 23, 2013). AFA 2010 Atlanta Meetings Paper; Journal of Finance, Vol. 69, No. 1, pp. 453-482, 2014. Available at SSRN: https://ssrn.com/abstract=1343809 or http://dx.doi.org/10.2139/ssrn.1343809