An Anatomy of Commodity Futures Risk Premia

73 Pages Posted: 17 Feb 2009 Last revised: 11 May 2014

Marta Szymanowska

Erasmus University Rotterdam (EUR) - Department of Finance; Erasmus Research Institute of Management (ERIM)

Frans de Roon

Tilburg University - Department of Finance

Theo Nijman

Tilburg University - Center and Faculty of Economics and Business Administration

Rob van den Goorbergh

APG Asset Management

Date Written: January 23, 2013

Abstract

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

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

Marta Szymanowska (Contact Author)

Erasmus University Rotterdam (EUR) - Department of Finance ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31104089607 (Phone)

HOME PAGE: http://www.rsm.nl/mszymanowska

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Frans A. De Roon

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 1 3466 8361/3025 (Phone)
+31 1 3466 2875 (Fax)

Theo E. Nijman

Tilburg University - Center and Faculty of Economics and Business Administration ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2342 (Phone)
+31 13 466 3280 (Fax)

Rob Van den Goorbergh

APG Asset Management ( email )

P.O. Box 75283
1070 AG Amsterdam
Netherlands

HOME PAGE: http://www.apg.nl/apgsite/pages/english/

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