Term Structure as the Primary Driver of Long-Term Commodity Futures Returns

13 Pages Posted: 12 Jul 2015

See all articles by Hilary Till

Hilary Till

Premia Research LLC; Commodity Insights Digest (a publication of Bayes Business School)

Date Written: October 20, 2006

Abstract

Given the generally observed mean-reverting nature of spot commodity prices, it should naturally follow that across time, roll yields (and therefore, backwardation) have to be the dominant explanatory variable for individual futures contract returns over long enough time horizons. In this paper, we apply this natural conclusion to the agricultural futures markets since these markets have continuous data since the late 1940’s. We also examine how long the time horizon needs to be before roll yields (and backwardation) are the dominant explanatory variable for investment returns in soybean, corn, and wheat futures contracts.

Keywords: commodity futures, backwardation, returns, roll yield

JEL Classification: G1, G11, Q11

Suggested Citation

Till, Hilary, Term Structure as the Primary Driver of Long-Term Commodity Futures Returns (October 20, 2006). Available at SSRN: https://ssrn.com/abstract=2629283 or http://dx.doi.org/10.2139/ssrn.2629283

Hilary Till (Contact Author)

Premia Research LLC ( email )

Chicago, IL
United States
312-583-1137 (Phone)
312-873-3914 (Fax)

HOME PAGE: http://www.spglobal.com/spdji/en/custom-index-calculations/premia/all/

Commodity Insights Digest (a publication of Bayes Business School) ( email )

London
United Kingdom

HOME PAGE: http://www.bayes-cid.com

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