Convenience Yield Risk

54 Pages Posted: 31 Jan 2023

See all articles by Marcel Prokopczuk

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Lazaros Symeonidis

Essex Business School, University of Essex

Chardin Wese Simen

University of Liverpool Management School

Robert Wichmann

ICMA Centre, University of Reading

Date Written: January 28, 2023

Abstract

We develop a framework to quantify the convenience yield risk (CYR) inherent to each commodity futures market. Implementing our approach, we document that our novel CYR measure is informative about future commodity returns. In panel regressions, the CYR predicts future returns with a positive sign. Economically, a strategy that opens long positions in commodity markets with a higher than median CYR signal and sells the remaining commodities yields an average return of 6.93% per year. The performance of the CYR strategy cannot be explained by exposure to existing commodity strategies or other variables that capture changes in the investment opportunity set.

Keywords: Commodity Risk Factors, Convenience Yield, Futures Curve, Return Predictability

JEL Classification: G12, Q02

Suggested Citation

Prokopczuk, Marcel and Symeonidis, Lazaros and Wese Simen, Chardin and Wichmann, Robert, Convenience Yield Risk (January 28, 2023). Energy Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4341471 or http://dx.doi.org/10.2139/ssrn.4341471

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Lazaros Symeonidis (Contact Author)

Essex Business School, University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Chardin Wese Simen

University of Liverpool Management School ( email )

Management School
University of Liverpool
Liverpool, L69 7ZH
United Kingdom

Robert Wichmann

ICMA Centre, University of Reading ( email )

ICMA Centre, Whiteknights Campus
Shinfield Road
Reading, Berkshire RG6 6BA
United Kingdom
+44 118 378 8239 (Phone)

HOME PAGE: http://www.icmacentre.ac.uk

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