Time-Varying Risk Premiums and Term Premiums in Commodity Futures

Posted: 28 Mar 2017

Date Written: March 28, 2017

Abstract

Term premiums, defined as the excess return of long-dated contracts over short-dated contracts, in commodity futures are strongly predictable, both in the time series and in the cross section, by roll yield spreads. Strategies that exploit this predictability show sizable Sharpe ratios and are uncorrelated with strategies that exploit predictability in risk premiums using the basis in futures prices, that is, use contango and backwardation conditions in futures market to develop their strategies.

Keywords: Commodities

JEL Classification: G10, G11, G12, G13

Suggested Citation

Chaves, Denis Biangolino, Time-Varying Risk Premiums and Term Premiums in Commodity Futures (March 28, 2017). Journal of Alternative Investments, Vol. 19, No. 4, 2017, Available at SSRN: https://ssrn.com/abstract=2942192

Denis Biangolino Chaves (Contact Author)

The Capital Group Companies ( email )

333 S. Hope Street, 53rd Floor
Los Angeles, CA 90071
United States

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