Post by Sapphire Capital on Oct 18, 2008 0:01:36 GMT 4
Commodities and the Market Price of Risk
Shaun K. Roache
International Monetary Fund (IMF)
September 2008
IMF Working Paper No. 08/221
Abstract:
Commodities are back following a stellar run of price performance, attracting financial investor attention. What are the fundamental reasons to hold commodities? One reason is the exposure offered to underlying risk factors. In this paper, I assess the macro risk exposure offered by commodity futures and test whether these risks are priced, using Merton's (1973) intertemporal capital asset pricing model for a sample of commodity prices covering the period January 1973 - February 2008. I find that commodity futures offer a hedge against lower interest rates and that investors are willing to accept lower expected returns for this position. Although some commodities are also a hedge against U.S. dollar depreciation, this risk is not priced.
papers.ssrn.com/sol3/Delivery.cfm/wp08221.pdf?abstractid=1278432&mirid=1
Shaun K. Roache
International Monetary Fund (IMF)
September 2008
IMF Working Paper No. 08/221
Abstract:
Commodities are back following a stellar run of price performance, attracting financial investor attention. What are the fundamental reasons to hold commodities? One reason is the exposure offered to underlying risk factors. In this paper, I assess the macro risk exposure offered by commodity futures and test whether these risks are priced, using Merton's (1973) intertemporal capital asset pricing model for a sample of commodity prices covering the period January 1973 - February 2008. I find that commodity futures offer a hedge against lower interest rates and that investors are willing to accept lower expected returns for this position. Although some commodities are also a hedge against U.S. dollar depreciation, this risk is not priced.
papers.ssrn.com/sol3/Delivery.cfm/wp08221.pdf?abstractid=1278432&mirid=1