Commodity Markets, Long-Run Predictability and Intertemporal Pricing

Joëlle Miffre, Ana-Maria Fuertes, Adrian Fernandez-Perez: This paper shows that backwardation versus contango factor-mimicking portfolios exhibit in-sample and out-of-sample predictive power for the first two moments of the distribution of long-run aggregate market returns and for the business cycle.

Author(s) :

Joelle Miffre

EDHEC Business School

Ana-Maria Fuertes

Cass Business School, City University London

Adrian Fernandez-Perez

Auckland University of Technology

It also demonstrates that a pricing model based on innovations to the backwardation versus contango risk factors explains relatively well a wide cross-section of equity portfolios. The cross-sectional “hedging” risk prices are economically consistent with the direction of long-run predictability of expected market returns and variances. Backwardation and contango risk factors thus act as plausible investment opportunity state variables in the context of Merton’s (1973) Intertemporal CAPM.

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Commodity Markets, Long-Run Predictability and Intertemporal Pricing...
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Type : Working paper
Date : le 31/07/2015
Extra information :

For more information, please contact EDHEC Research and Development Department [ research@drd.edhec.edu ]

Research Cluster : Finance

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