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Adaptive expectations and commodity risk premiums

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  • Bianchi, Daniele

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.

Suggested Citation

  • Bianchi, Daniele, 2021. "Adaptive expectations and commodity risk premiums," Journal of Economic Dynamics and Control, Elsevier, vol. 124(C).
    • Handle: RePEc:eee:dyncon:v:124:y:2021:i:c:s0165188921000130
    DOI: 10.1016/j.jedc.2021.104078
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    Citations

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    Cited by:

    1. Fan, Minyou & Kearney, Fearghal & Li, Youwei & Liu, Jiadong, 2022. "Momentum and the Cross-section of Stock Volatility," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).
    2. Christina Sklibosios Nikitopoulos & Alice Carole Thomas & Jianxin Wang, 2024. "Hedging pressure and oil volatility: Insurance versus liquidity demands," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(2), pages 252-280, February.
    3. Wang, Jiqian & Ma, Feng & Wang, Tianyang & Wu, Lan, 2023. "International stock volatility predictability: New evidence from uncertainties," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 85(C).

    More about this item

    Keywords

    Commodity markets; Empirical asset pricing; Hedging pressure; Time series momentum; Adaptive expectations;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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