Hazard Fear in Commodity Markets

65 Pages Posted: 30 Jun 2019

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 Nantes School of Management; Audencia Business School

Date Written: June 28, 2019

Abstract

We introduce a commodity futures return predictor related to fear about impending weather, disease, geopolitical and economic hazards that can shift the commodity supply or demand. Exploiting the commodity hazard-fear characteristic as a trading signal in a long-short portfolio framework, we find a sizeable and significant commodity premium. The hazard-fear premium reflects compensation for known factors such as basis, momentum and illiquidity risks, but is not subsumed by them. Exposure to hazard-fear is strongly priced in the cross-section of individual commodity futures returns and commodity portfolios beyond known risk factors. We identify a strong role for general investor sentiment in the commodity hazard-fear premium.

Keywords: Commodity futures; Long-short portfolios; Supply and Demand; Hazards; Fear; Search activity; Sentiment

Suggested Citation

Fernandez-Perez, Adrian and Fuertes, Ana-Maria and González-Fernández, Marcos and Miffre, Joelle, Hazard Fear in Commodity Markets (June 28, 2019). 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 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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