Advanced Search
MyIDEAS: Login

Risk Premiums and the Storage of Agricultural Commodities

Contents:

Author Info

  • Lin, Hua

    (U of Wisconsin)

  • Fortenbery, T. Randall
Registered author(s):

    Abstract

    The existence of a commodity market risk premium has attracted the interest of researchers for several decades. Most attempts to measure risk premiums have been focused on futures markets. However, if the risk premium is a payment made by hedgers (as suggested by Keynes) to reduce their risk profile, then the risk being reduced originates in the cash market. This suggests that the risk premium may also originate in the cash market. As such, the search for a risk premium should focus on the cash market, and, given Working's Supply of Storage Curve, should be measured as a function of stored inventory. This paper develops an expected utility based model that separates the risk premium from other storage incentives, and illustrates the role of the cash market risk premium on the storage decisions of two different market agents.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.aae.wisc.edu/pubs/sps/pdf/stpap504.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by University of Wisconsin, Agricultural and Applied Economics in its series Staff Paper Series with number 504.

    as in new window
    Length:
    Date of creation: Dec 2006
    Date of revision:
    Handle: RePEc:ecl:wisagr:504

    Contact details of provider:
    Postal: 427 Lorch Street, Madison, WI 53706-1503
    Phone: 608-262-8966
    Fax: 608-262-4376
    Email:
    Web page: http://www.aae.wisc.edu/pubs/sps/
    More information through EDIRC

    Related research

    Keywords:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Bessembinder, Hendrik, 1992. "Systematic Risk, Hedging Pressure, and Risk Premiums in Futures Markets," Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 637-67.
    2. Chavas, Jean-Paul, 1988. "On competitive speculation under uncertainty: An alternative view of the inverse-carrying charge," Journal of Economics and Business, Elsevier, vol. 40(2), pages 117-128, May.
    3. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
    4. Dusak, Katherine, 1973. "Futures Trading and Investor Returns: An Investigation of Commodity Market Risk Premiums," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1387-1406, Nov.-Dec..
    5. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September.
    6. Chavas, Jean-Paul & Holt, Matthew T, 1996. "Economic Behavior under Uncertainty: A Joint Analysis of Risk Preferences and Technology," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 329-35, May.
    7. Bruce Bjornson & Colin A. Carter, 1997. "New Evidence on Agricultural Commodity Return Performance under Time-Varying Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 918-930.
    8. Carter, Colin A & Rausser, Gordon C & Schmitz, Andrew, 1983. "Efficient Asset Portfolios and the Theory of Normal Backwardation," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 319-31, April.
    9. Lester G. Telser, 1958. "Futures Trading and the Storage of Cotton and Wheat," Journal of Political Economy, University of Chicago Press, vol. 66, pages 233.
    10. Jean-Paul Chavas & Paula M. Despins & T. Randy Fortenbery, 2000. "Inventory Dynamics under Transaction Costs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(2), pages 260-273.
    11. Bessembinder, Hendrik & Chan, Kalok, 1992. "Time-varying risk premia and forecastable returns in futures markets," Journal of Financial Economics, Elsevier, vol. 32(2), pages 169-193, October.
    12. Joost M. E. Pennings & Ale Smidts, 2003. "The Shape of Utility Functions and Organizational Behavior," Management Science, INFORMS, vol. 49(9), pages 1251-1263, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ecl:wisagr:504. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.