The Skewness of Commodity Futures Returns

Journal of Banking and Finance (Forthcoming)

43 Pages Posted: 8 Oct 2015 Last revised: 5 Jul 2017

See all articles by Adrian Fernandez-Perez

Adrian Fernandez-Perez

Auckland University of Technology

Bart Frijns

Auckland University of Technology - Faculty of Business & Law

Ana-Maria Fuertes

Cass Business School, City University of London

Joëlle Miffre

Audencia Nantes School of Management; Audencia Business School

Date Written: July 4, 2017

Abstract

This article studies the relation between the skewness of commodity futures returns and expected returns. A trading strategy that takes long positions in commodity futures with the most negative skew and shorts those with the most positive skew generates significant excess returns that remain after controlling for exposure to well-known risk factors. A tradeable skewness factor explains the cross-section of commodity futures returns beyond exposures to standard risk premia. The impact that skewness has on future returns is explained by investors’ preferences for skewness under cumulative prospect theory and selective hedging practices.

Keywords: Skewness; Commodities; Futures pricing; Selective hedging

JEL Classification: G13, G14

Suggested Citation

Fernandez-Perez, Adrian and Frijns, Bart and Fuertes, Ana-Maria and Miffre, Joelle, The Skewness of Commodity Futures Returns (July 4, 2017). Journal of Banking and Finance (Forthcoming). Available at SSRN: https://ssrn.com/abstract=2671165 or http://dx.doi.org/10.2139/ssrn.2671165

Adrian Fernandez-Perez

Auckland University of Technology ( email )

AUT City Campus
Private Bag 92006
Auckland, 1142
New Zealand
+64 9 921 9999 (Phone)
+64 9 921 9940 (Fax)

Bart Frijns

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

Ana-Maria Fuertes

Cass Business School, City University of London ( email )

Faculty of Finance
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 207 477 0186 (Phone)
+44 207 477 8881 (Fax)

HOME PAGE: http://www.city.ac.uk/people/academics/ana-maria-fuertes

Joelle Miffre (Contact Author)

Audencia Nantes School of Management ( email )

8 route de la Jonelière, BP 31222
Nantes Cedex 3, Cedex 3 44312
France

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

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