Post by alanbond on Mar 5, 2009 0:52:41 GMT 4
Capturing the Risk Premium of Commodity Futures
Devraj Basu
EDHEC Graduate School of Management - Risk and Asset Management Research Center
Joelle Miffre
EDHEC Graduate School of Management
February 11, 2009
Abstract:
The recent surge of investment in commodities prompts a re-examination of whether there is a risk premium in commodity futures markets. Following the methodology of Fama and French (1993), we construct for a sample of 27 commodities a mimicking portfolio that is based on the generalized hedging pressure hypothesis of Cootner (1960) and Hirshleifer (1990). Over the period 1992-2008, the resulting dynamic long-short portfolio outperforms a passive buy-and-hold portfolio, suggesting the presence of a time-varying risk premium in commodity futures markets and the need for active management to capture this risk premium. The risk premium thus identified is capable of capturing part of the outperformance of active portfolios sorted on momentum and term structure signals.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1341733_code257103.pdf?abstractid=1340873&mirid=1
Devraj Basu
EDHEC Graduate School of Management - Risk and Asset Management Research Center
Joelle Miffre
EDHEC Graduate School of Management
February 11, 2009
Abstract:
The recent surge of investment in commodities prompts a re-examination of whether there is a risk premium in commodity futures markets. Following the methodology of Fama and French (1993), we construct for a sample of 27 commodities a mimicking portfolio that is based on the generalized hedging pressure hypothesis of Cootner (1960) and Hirshleifer (1990). Over the period 1992-2008, the resulting dynamic long-short portfolio outperforms a passive buy-and-hold portfolio, suggesting the presence of a time-varying risk premium in commodity futures markets and the need for active management to capture this risk premium. The risk premium thus identified is capable of capturing part of the outperformance of active portfolios sorted on momentum and term structure signals.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1341733_code257103.pdf?abstractid=1340873&mirid=1