Adaptive expectations and commodity risk premiums

Abstract I investigate the determinants of the commodity futures risk premiums for different maturities through the lens of a model of adaptive expectations in which expected future spot prices are revised based on past prediction errors. The main results show that the time variation in risk premiums is predominantly driven by hedging vs speculation decisions and past performances, conditional on a set of aggregate macroeconomic fundamentals. In addition, a set of panel regressions show that the model-implied risk premiums significantly correlate with proxies of quantity of risk such as the realised variance and skewness. Finally, the empirical analysis provide evidence of business cycle fluctuations in the relationship between hedging pressure and risk premiums over different horizons.

• Publication year

  2021

• Venue

  Journal of Economic Dynamics and Control

• Publication date

  2021-03-01

• Fields of study

  Economics

• Identifiers
  DOI 10.1016/J.JEDC.2021.104078
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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