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Financialization and speculators risk premia in commodity futures markets

Author

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  • Carter, Colin A.
  • Revoredo-Giha, Cesar

Abstract

J.M. Keynes coined the term normal backwardation, a situation where a futures price for a particular expiry month is less than the expected spot price for that month. He argued hedgers pay speculators a risk premium, giving rise to normal backwardation. We study the behavior of commodity futures before and since financialization of the markets, which started about 20 years ago. We find the poor returns to managed futures in recent years are likely due to the impact of financialization and the associated outside money suppressing the futures risk premium.

Suggested Citation

  • Carter, Colin A. & Revoredo-Giha, Cesar, 2023. "Financialization and speculators risk premia in commodity futures markets," International Review of Financial Analysis, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:finana:v:88:y:2023:i:c:s1057521923002077
    DOI: 10.1016/j.irfa.2023.102691
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    References listed on IDEAS

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    More about this item

    Keywords

    Normal backwardation; Futures risk premium; Commodity market financialization;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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