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Expected Spot Prices and the Dynamics of Commodity Risk Premia

50 Pages Posted: 28 May 2016 Last revised: 22 Jun 2017

Daniele Bianchi

University of Warwick, Warwick Business School

Jacopo Piana

Cass Business School

Date Written: June 22, 2017

Abstract

We investigate the dynamics of the ex-ante risk premia for different commodities and maturities through the lens of a model of adaptive learning in which expected future spot prices are revised based on past prediction errors and changes in aggregate economic growth. The main results show that time-varying risk premia are predominantly driven by market activity and financial risks. More generally, we provide evidence of heterogeneity in the dynamics of factor loadings, both across commodities and time horizons. Finally, we show that the expectations generated by adaptive learning are consistent with the cross-sectional average of Bloomberg professional analysts' forecasts.

Keywords: Commodity Markets, Adaptive Expectations, Risk Premia, Empirical Asset Pricing, Survey Forecasts

JEL Classification: G12, G17, E44, C58

Suggested Citation

Bianchi, Daniele and Piana, Jacopo, Expected Spot Prices and the Dynamics of Commodity Risk Premia (June 22, 2017). Available at SSRN: https://ssrn.com/abstract=2785563

Daniele Bianchi (Contact Author)

University of Warwick, Warwick Business School ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

HOME PAGE: http://whitesphd.com/

Jacopo Piana

Cass Business School ( email )

Bunhill Row, 106
Department of Finance
London, EC1Y 8TZ
Great Britain

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