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.

Pdf
Commodity Markets, Long-Run Predictability and Intertemporal Pricing...
(-1.00 B)
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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