Rational Expectations Model of Time Varying Risk Premia in the Commodities Futures Markets : Theory and Evidence PDF Download

Author: S. E. Beck
Publisher:
ISBN:
Category :
Languages : en
Pages :

View

Book Description

Author: Mr.Manmohan S. Kumar
Publisher: International Monetary Fund
ISBN: 145194196X
Category : Business & Economics
Languages : en
Pages : 32

View

Book Description
This paper undertakes an econometric investigation into the presence of risk premium in commodity futures markets. The statistical tests are derived from a formal model of asset pricing and are applied to futures prices in a variety of commodity markets. The results suggest that for several commodities there is evidence of a time varying risk premium, particularly in futures contracts maturing six months ahead. The implications of the study for the efficiency of the futures markets and the costs of using these markets for hedging are also noted.

Author: Graciela Kaminsky
Publisher:
ISBN:
Category :
Languages : en
Pages : 32

View

Book Description
This paper undertakes an econometric investigation into the presence of risk premium in commodity futures markets. The statistical tests are derived from a formal model of asset pricing and are applied to futures prices in a variety of commodity markets. The results suggest that for several commodities there is evidence of a time varying risk premium, particularly in futures contracts maturing six months ahead. The implications of the study for the efficiency of the futures markets and the costs of using these markets for hedging are also noted.

Author: Barry Goss
Publisher: Routledge
ISBN: 1134975201
Category : Business & Economics
Languages : en
Pages : 240

View

Book Description
Do traders in futures markets make use of all relevant information and is this reflected in prices? This collection of original essays by a team of international economists considers these and other questions central to futures markets.

Author: Warren Bernard Bailey
Publisher:
ISBN:
Category : Commodity futures
Languages : en
Pages : 24

View

Book Description

Author: Boum-Jong Choe
Publisher: World Bank Publications
ISBN:
Category :
Languages : en
Pages : 27

View

Book Description

Author: Constantino Hevia
Publisher:
ISBN:
Category : Commodity futures
Languages : en
Pages : 66

View

Book Description
We develop and estimate a multifactor affine model of commodity futures that allows for stochastic variations in seasonality. We show conditions under which the yield curve and the cost-of-carry curve adopt augmented Nelson and Siegel functional forms. This restricted version of the model is parsimonious, does not suffer from identification problems, and matches well the yield curve and futures curve over time. We estimate the model using heating oil futures prices over the period 1984-2012. We find strong evidence of stochastic seasonality in the data. We analyze risk premia in futures markets and discuss two traditional theories of commodity futures: the theory of storage and the theory of normal backwardation. The data strongly supports the theory of storage.

Author: Jaime Casassus
Publisher:
ISBN:
Category :
Languages : en
Pages : 36

View

Book Description
We develop a three-factor Gaussian model of commodity spot prices, convenience yields and interest rates, which extends previous research (e.g., Brennan (1991), Gibson and Schwartz (1990), Schwartz (1997), Ross (1997), Schwartz and Smith (2000)) in two ways. First, the model is maximal, and thus nests all previously proposed specifications. Second, we allow for time-varying risk-premia. We show that previous models have implicitly imposed unnecessary restrictions on the unconditional correlation structure of commodity prices, convenience yields and interest rates. Using data on copper, crude oil, silver and gold commodity futures, we empirically estimate the model using maximum likelihood. We find both features of the model to be economically and empirically significant. In particular, we find strong evidence for spot-price level dependence in convenience yields, which implies mean-reversion in spot prices under the risk-neutral measure, and is consistent with the quot;theory of storage.quot; We also find evidence for time-varying risk-premia, which implies mean-reversion of commodity prices under the physical measure albeit with different strength and long-term mean. The model thus disentangles the different sources of mean-reversion in spot commodity prices. The results suggest that the relative contribution of both effects (level dependent convenience yield vs. time-varying risk-premia) to mean reversion depends on the nature of the commodity. We find that for metals like gold and silver, negative correlation between risk-premia and spot prices explains most of the mean reversion, whereas for oil almost all of the mean-reversion in spot prices is attributable to convenience yields.

Author: Daniele Bianchi
Publisher:
ISBN:
Category :
Languages : en
Pages : 48

View

Book Description
We investigate the determinants of the commodity (ex-ante) risk premia for different maturities through the lens of a model of adaptive learning in which expected future spot prices are revised based on past prediction errors and changes in economic fundamentals. The main results show that risk premia are highly time varying and their dynamics is predominantly driven by hedging pressure and time-series momentum, conditional on a set of common predictors. Cumulative impulse-response functions from a panel VAR model show that these effects are persistent and not short-lived. Further, we provide evidence that the ex-ante spot premia is positively (negatively) correlated with the variance (skewness) of past realized returns, consistent with existing theoretical evidence. Finally, we show that adaptive expectations are broadly consistent with the cross-sectional average of a subset of Bloomberg professional analysts' forecasts.

Author: Davidson Heath
Publisher:
ISBN:
Category :
Languages : en
Pages : 72

View

Book Description
This paper investigates the forecastability of prices and returns in commodity futures markets. To examine the implications for models of commodity prices we derive a new canonical affine form that lends itself to model evaluation and comparison. Both regressions and model estimates imply that effectively all variation in the term structure of futures prices is due to time varying risk premiums and none to price forecasts. The model estimates further suggest that the economic quantity that links futures prices to storage -- the cost of carry -- is pinned down unambiguously by the data.