Commodity Risks and the Cross-Section of Equity Returns

Chris Brooks, Adrian Fernandez-Perez, Joëlle Miffre, Ogonna Nneji: The article examines whether commodity risk is priced in the cross-section of global equity returns.

Author(s):

Chris Brooks

ICMA Centre, Henley Business School, University of Reading

Adrian Fernandez-Perez

Department of Finance, Auckland University of Technology

Joelle Miffre

EDHEC Business School

Ogonna Nneji

ICMA Centre, Henley Business School, University of Reading

We employ a long-only equally-weighted portfolio of commodity futures and a term structure portfolio that captures phases of backwardation and contango as mimicking portfolios for commodity risk. We find that equity-sorted portfolios with greater sensitivities to the excess returns of the backwardation and contango portfolio command higher average excess returns, suggesting that when measured appropriately, commodity risk is pervasive in stocks. Our conclusions are robust to the addition to the pricing model of financial, macroeconomic and business cycle-based risk factors.
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Commodity Risks and the Cross-Section of Equity Returns...
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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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