Commodity Returns: Lost in Financialization

60 Pages Posted: 2 Feb 2023

See all articles by Fahiz Baba Yara

Fahiz Baba Yara

Indiana University - Kelley School of Business

Massimiliano Bondatti

Nova School of Business and Economics

Date Written: February 2, 2022


The flow of investment capital into the commodity futures market dramatically increased around 2004, and this event is referred to as the financialization of commodity markets. We study how this phenomenon has affected average returns in this asset class by examining how returns to popular commodity futures strategies have evolved. We find that about 80\% of commodity futures strategies that earned statistically significant average returns pre-financialization have earned an average of a zero return since. Using a six latent factor asset pricing model, we show that this deterioration in strategy returns can be wholly explained by an adverse change in the average returns to systematically priced variation in the cross-section of commodity futures. In robustness tests, we show that the publication of commodity strategies in the academic literature can only explain about 25\% of the 51 bps per month reduction that commodity futures strategies have experienced post-financialization.

Keywords: Commodity futures markets, Commodity risk premium, Latent factor models, Financialization of commodities, Commodity investment strategies

JEL Classification: G11, G12, G13, G14, G29

Suggested Citation

Baba Yara, Fahiz and Bondatti, Massimiliano, Commodity Returns: Lost in Financialization (February 2, 2022). Kelley School of Business Research Paper No. 2022-4345427, Available at SSRN: or

Fahiz Baba Yara (Contact Author)

Indiana University - Kelley School of Business ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States


Massimiliano Bondatti

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405


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