Capturing the Risk Premium of Commodity Futures: The Role of Hedging Pressure

Devraj Basu, Joëlle Miffre: We construct long-short factor-mimicking portfolios that capture the hedging pressure risk premium of commodity futures.

Author(s) :

Devraj Basu

Professor of Finance, SKEMA Business School

Joelle Miffre

Professor of Finance, EDHEC Business School

Presentation :

We consider single sorts based on the open interests of either hedgers or speculators, as well as double sorts based on both positions. We find positive and significant commodity futures risk premiums from both single and double sorts, alongside with Sharpe ratios that systematically exceed those of long-only commodity portfolios. Further tests show that the hedging pressure risk premiums rise with the lagged volatility of commodity markets and that the cross-sectional price of commodity risk is positive. Finally, the hedging pressure risk premiums are found to explain the performance of active commodity portfolios better than long-only commodity benchmarks and to act as better diversifiers of equity risk.
Pdf
Capturing the Risk Premium of Commodity Futures: The Role of Hedging Pressure...
(1.70 MB)
Type : Working paper
Date : le 02/01/2012
Extra information : For more information, please contact EDHEC Research and Development Department [ research@drd.edhec.edu ]
Research Cluster : Finance

See Also

OTHERWISE#4 is online !
- 23-03-2017
One of EDHEC’s hallmarks is “being where it is not expected to be” and OTHERWISE...
Support the new generation of students
- 20-03-2017
Support the new generation of students Act for EDHEC! Many Alumni in the UK have...
Emmanuel Metais named new Dean of EDHEC Business School
- 17-03-2017
EDHEC Business School is pleased to announce Emmanuel Métais’s appointment as the new...
MSc in Data Analytics & Digital Business: a new master designed to bridge the gap between data specialists and decision makers
- 13-03-2017
EDHEC Business School is pleased to announce the launch of a new MSc in Data Analytics...