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Commodity and Asset Pricing Models: An Integration

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  • Gonzalo Cortazar
  • Ivo Kovacevic
  • Eduardo S. Schwartz
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    Abstract

    We present a simple methodology that integrates commodity and asset pricing models. Given current evidence on the financialization of commodity markets, valuable information about commodity risk premiums can be extracted from asset pricing models and used to substantially improve the estimates of expected spot prices provided by current commodity price models. The methodology can be used with any pair of commodity and asset pricing models. An implementation of the methodology is presented using the Schwartz and Smith (2000) two-factor commodity price model and the CAPM. Reasonable expected spot prices are obtained without negative consequences in the model’s fit to futures prices.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19167.

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    Date of creation: Jun 2013
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    Handle: RePEc:nbr:nberwo:19167

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    Cited by:
    1. Sévi, Benoît & Le Pen, Yannick, 2013. "Futures trading and the excess comovement of commodity prices," Economics Papers from University Paris Dauphine 123456789/11382, Paris Dauphine University.
    2. repec:ipg:wpaper:19 is not listed on IDEAS

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