Risk Premia and Seasonality in Commodity Futures

68 Pages Posted: 18 Apr 2016 Last revised: 12 Mar 2018

See all articles by Constantino Hevia

Constantino Hevia

Universidad Torcuato Di Tella - Departamento de Economia

Ivan Petrella

University of Warwick; Centre for Economic Policy Research (CEPR)

Martin Sola

Universidad Torcuato Di Tella

Multiple version iconThere are 2 versions of this paper

Date Written: March 2016

Abstract

We develop and estimate a multifactor affine model of commodity futures that allows for stochastic seasonality. We document the existence of stochastic seasonal fluctuations in commodity futures and that properly accounting for the cost-of-carry curve requires at least three factors. We estimate the model using data on heating oil futures and analyze the contribution of the factors to risk premia. Correctly specifying seasonality as stochastic is important to avoid erroneously assigning those fluctuations to other risk factors. We also estimate a nonlinear version of the model that imposes the zero lower bound on interest rates and find similar results.

Keywords: Commodity Futures, Nelson and Siegel, Risk premium, Seasonality, Theory of storage.

JEL Classification: C22, G12, G13

Suggested Citation

Hevia, Constantino and Petrella, Ivan and Sola, Martin, Risk Premia and Seasonality in Commodity Futures (March 2016). CEPR Discussion Paper No. DP11169. Available at SSRN: https://ssrn.com/abstract=2766464

Constantino Hevia (Contact Author)

Universidad Torcuato Di Tella - Departamento de Economia ( email )

Minones 2177
1428 Buenos Aires
Argentina

Ivan Petrella

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Martin Sola

Universidad Torcuato Di Tella ( email )

Minones 2159
C1428ATG Buenos Aires, 1428
Argentina

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