What Every Investor Should Know About Commodities, Part I: Univariate Return Analysis

Alternative Investment Research Centre Working Paper No. 29

Cass Business School Research Paper

35 Pages Posted: 27 Jan 2006  

Harry M. Kat

Independent

Roel C. A. Oomen

Deutsche Bank AG (London); London School of Economics & Political Science (LSE) - Department of Statistics

Date Written: January 26, 2006

Abstract

In this paper we study the univariate return properties of a large variety of commodity futures. Our analysis shows that the volatility of commodity futures is comparable to that of US large cap stocks. Yet, with the exception of energy, a consistently positive risk premium is lacking in commodity futures. We also find that for many commodities, futures returns and volatility can vary considerably over different phases of the business cycle, under different monetary conditions as well as with the shape of the futures curve. Skewness in commodity futures returns is largely insignificant, whereas kurtosis is significantly positive and comparable to that of US large cap stocks. In almost all commodities we find significant degrees of autocorrelation, which affects the properties of longer horizon returns.

Keywords: Commodities, commodity futures, risk premium, volatility, skewness, kurtosis, autocorrelation

JEL Classification: G11, E44, O13, Q19, Q49

Suggested Citation

Kat, Harry M. and Oomen, Roel C. A., What Every Investor Should Know About Commodities, Part I: Univariate Return Analysis (January 26, 2006). ; Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=878361 or http://dx.doi.org/10.2139/ssrn.878361

Harry M. Kat (Contact Author)

Independent

No Address Available

Roel C.A. Oomen

Deutsche Bank AG (London) ( email )

Winchester House
1 Great Winchester Street
London, EC2N 2DB
United Kingdom

London School of Economics & Political Science (LSE) - Department of Statistics ( email )

Houghton Street
London, England WC2A 2AE
United Kingdom

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