Fear of Hazards in Commodity Futures Markets

62 Pages Posted: 30 Jun 2019 Last revised: 24 Aug 2020

See all articles by Adrian Fernandez-Perez

Adrian Fernandez-Perez

Auckland University of Technology

Ana-Maria Fuertes

Cass Business School, City University of London

Marcos González-Fernández

Universidad de León

Joëlle Miffre

Audencia Business School

Date Written: June 28, 2019

Abstract

We examine the commodity futures pricing role of active attention to weather, disease, geopolitical or economic threats or “hazard fear” as proxied by the volume of internet searches by 149 query terms. A long-short portfolio strategy that sorts the cross-section of commodity futures contracts according to a hazard fear signal captures a significant premium. This commodity hazard fear premium reflects compensation for extant fundamental, tail, volatility and liquidity risks factors, but it is not subsumed by them. Exposure to hazard-fear is strongly priced in the cross-section of commodity portfolios. The hazard fear premium exacerbates during periods of adverse sentiment or pessimism in financial markets.

Keywords: Commodity futures; Fear; Attention; Hazards; Internet searches; Sentiment; Long-short portfolios

Suggested Citation

Fernandez-Perez, Adrian and Fuertes, Ana-Maria and González-Fernández, Marcos and Miffre, Joelle, Fear of Hazards in Commodity Futures Markets (June 28, 2019). Journal of Banking and Finance, Vol. 119, 2020, Available at SSRN: https://ssrn.com/abstract=3411117 or http://dx.doi.org/10.2139/ssrn.3411117

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)

Ana-Maria Fuertes (Contact Author)

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

Marcos González-Fernández

Universidad de León ( email )

Leon, 24071
Spain

Joelle Miffre

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

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