A Tale of Two Premiums Revisited

48 Pages Posted: 30 Jul 2021

See all articles by Loïc Maréchal

Loïc Maréchal

University of Lausanne; Cyber-Defence Campus, armasuisse Science and Technology

Date Written: July 7, 2021


This paper investigates the effect of the “financialization” of commodity markets in terms of pricing. I explore whether the emergence of commodity index traders affects weekly returns and turnover during the roll periods. I split the sample (1994–2017) into the pre-financialization (1994–2003) and the post-financialization (2004–2017). I directly test whether the market share of index traders contributes to commodity returns and whether risk adjustments (based on momentum, basis, basis-momentum, open interest, crowding, and average factors) alter liquidity and insurance premiums documented in Kang, Rouwenhorst, and Tang (2020). I also examine how the financialization affects liquidity and insurance premiums. Finally, since previous results are obtained with Fama-MacBeth regressions, I use an alternative method totest how liquidity and insurance premiums determine commodity returns.

Keywords: commodity futures, risk premium, liquidity premium, hedging pressure, financialization

JEL Classification: G13, G14, G23

Suggested Citation

Maréchal, Loïc, A Tale of Two Premiums Revisited (July 7, 2021). Available at SSRN: https://ssrn.com/abstract=3881922 or http://dx.doi.org/10.2139/ssrn.3881922

Loïc Maréchal (Contact Author)

University of Lausanne ( email )

Innovation Park, EPFL

HOME PAGE: http://www.loicmarechal.dev

Cyber-Defence Campus, armasuisse Science and Technology ( email )

Innovation Park, EPFL
Lausanne, Vaud 1000

HOME PAGE: http://https://www.ar.admin.ch/

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