Download This PaperCommodity Inflation Risk Premium: Evidence from the Cross-Section of Commodity Futures
2022 University of Rochester Conference in Econometrics, Paris December Finance Meeting 2022, 2023 Annual Meeting of the Swiss Society for Financial Market Research (SGF), FMA Annual Meeting 2022, FMA-Europe 2022, CFE Berlin 2023, EFMA 2022
Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2022
56 Pages Posted: 21 Sep 2022 Last revised: 27 Mar 2024
Date Written: May 27, 2024
Abstract
We propose a novel measure of the commodity inflation risk premium (cIRP) based on a term structure model of commodity futures. The cIRP exhibits strong heterogeneity across commodities. As a characteristic, the cIRP captures forward-looking information in the futures markets and outperforms well-known characteristics in explaining the cross-section of commodity returns. The associated cIRP factor has the highest Sharpe ratio among all existing factors and it cannot be explained by other factors.
Keywords: Commodities, Term structure models, Predictability, Inflation risk premium, Cross-sectional asset pricing JEL Classification: G12, G13, G17, Q02
JEL Classification: G10, G11, G12, G13
Suggested Citation: Suggested Citation
Guofu Zhou
Washington University in St. Louis - John M. Olin Business School ( email )
Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)
HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/