Risk Premia and Seasonality in Commodity Futures

68 Pages Posted: 6 May 2016

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)

Martín Sola

Universidad Torcuato Di Tella; University of London - Economics, Mathematics and Statistics

Multiple version iconThere are 2 versions of this paper

Date Written: April 15, 2016

Abstract

​We develop and estimate a multifactor affine model of commodity futures that allows for stochastic variations in seasonality. We show conditions under which the yield curve and the cost-of-carry curve adopt augmented Nelson and Siegel functional forms. This restricted version of the model is parsimonious, does not suffer from identification problems, and matches well the yield curve and futures curve over time. We estimate the model using heating oil futures prices over the period 1984–2012. We find strong evidence of stochastic seasonality in the data. We analyse risk premia in futures markets and discuss two traditional theories of commodity futures: the theory of storage and the theory of normal backwardation. The data strongly supports the theory of storage.

Keywords: Commodity futures, Nelson and Siegel, seasonality, risk premium, theory of storage

JEL Classification: G13, E43, Q02, Q40

Suggested Citation

Hevia, Constantino and Petrella, Ivan and Sola, Martín, Risk Premia and Seasonality in Commodity Futures (April 15, 2016). Bank of England Working Paper No. 591. Available at SSRN: https://ssrn.com/abstract=2776582 or http://dx.doi.org/10.2139/ssrn.2776582

Constantino Hevia

Universidad Torcuato Di Tella - Departamento de Economia ( email )

Minones 2177
1428 Buenos Aires
Argentina

Ivan Petrella (Contact Author)

University of Warwick ( email )

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Martín Sola

Universidad Torcuato Di Tella ( email )

Minones 2159
1428 Buenos Aires, 1428
Argentina
5411 4784 0080 (Phone)
5411 4784 9807 (Fax)

University of London - Economics, Mathematics and Statistics ( email )

Malet Street
London, WC1E 7HX
United Kingdom
+44 20 7631 6411 (Phone)
+44 20 7631 6416 (Fax)

HOME PAGE: http://www.econ.bbk.ac.uk/faculty/sola/

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