Risk Premia in the Commodity Market

66 Pages Posted: 16 Apr 2024

See all articles by Athanasios Sakkas

Athanasios Sakkas

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: April 16, 2024

Abstract

Employing a broad cross-section of commodities, we investigate the risk premia estimates for a large set of tradable and nontradable factors using state-of-the-art machine learning methodologies that account for omitted variable and measurement error biases in asset pricing. We show that momentum factors from equity, bonds, and currencies are priced in the cross-section of commodity returns, designating a link between commodity and other financial markets. Finally, the cross-sectional commodity pricing ability of news-based uncertainty and volatility factors with a negative risk premium suggests that commodities are safer at bad times.

Keywords: Commodities; Factor premia; Observable factors; Nontradable factors;PCA; RP-PCA; SPCA

JEL Classification: G11;G12

Suggested Citation

Sakkas, Athanasios, Risk Premia in the Commodity Market (April 16, 2024). Available at SSRN: https://ssrn.com/abstract=4796343 or http://dx.doi.org/10.2139/ssrn.4796343

Athanasios Sakkas (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

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