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New Evidence on Agricultural Commodity Return Performance under Time-Varying Risk

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  • Bruce Bjornson
  • Colin A. Carter

Abstract

Holding commodity stocks is a major investment that commodity producers, merchants, and processors must continually manage. In this paper we study the conditional risk and return characteristics of commodities. We use a generalized method of moments estimator in a model of conditional expected returns under a single-beta asset pricing theory framework, allowing both the risk premium and the beta to vary with time. We find that expected returns to commodities are lower during times of high interest rates, expected inflation, and economic growth. This suggests that commodities provide a natural hedge against business cycles. Copyright 1997, Oxford University Press.

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Bibliographic Info

Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 79 (1997)
Issue (Month): 3 ()
Pages: 918-930

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Handle: RePEc:oup:ajagec:v:79:y:1997:i:3:p:918-930

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Cited by:
  1. Gonzalo Cortazar & Ivo Kovacevic & Eduardo S. Schwartz, 2013. "Commodity and Asset Pricing Models: An Integration," NBER Working Papers 19167, National Bureau of Economic Research, Inc.
  2. Lehecka, Georg, 2013. "Have food and financial markets integrated? An empirical assessment on aggregate data," 53rd Annual Conference, Berlin, Germany, September 25-27, 2013 156108, German Association of Agricultural Economists (GEWISOLA).
  3. Irwin, Scott H. & Sanders, Dwight R., 2012. "Financialization and Structural Change in Commodity Futures Markets," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 44(03), August.
  4. Mukherjee, Dr. Kedar nath, 2011. "Commodity investments: opportunities for Indian institutional investors," MPRA Paper 33510, University Library of Munich, Germany.
  5. Wang, Changyun, 2001. "The behavior and performance of major types of futures traders," MPRA Paper 36426, University Library of Munich, Germany, revised Jul 2002.
  6. Carter, Colin A., 1999. "Commodity futures markets: a survey," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 43(2).
  7. Scott H. Irwin & Dwight R. Sanders, 2011. "Index Funds, Financialization, and Commodity Futures Markets," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 33(1), pages 1-31.
  8. Sadorsky, Perry, 2002. "Time-varying risk premiums in petroleum futures prices," Energy Economics, Elsevier, vol. 24(6), pages 539-556, November.
  9. Lin, Hua & Fortenbery, T. Randall, 2006. "Risk Premiums and the Storage of Agricultural Commodities," Staff Paper Series 504, University of Wisconsin, Agricultural and Applied Economics.
  10. Cochran, Steven J. & Mansur, Iqbal & Odusami, Babatunde, 2012. "Volatility persistence in metal returns: A FIGARCH approach," Journal of Economics and Business, Elsevier, vol. 64(4), pages 287-305.

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