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Fear of hazards in commodity futures markets

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  • Fernandez-Perez, Adrian
  • Fuertes, Ana-Maria
  • Gonzalez-Fernandez, Marcos
  • Miffre, Joelle

Abstract

We examine the commodity futures pricing role of active attention to weather, disease, geopolitical or economic threats or “hazard fear” as proxied by the volume of internet searches by 149 query terms. A long-short portfolio strategy that sorts the cross-section of commodity futures contracts according to a hazard fear signal captures a significant premium. This commodity hazard fear premium reflects compensation for extant fundamental, tail, volatility and liquidity risks factors, but it is not subsumed by them. Exposure to hazard-fear is strongly priced in the cross-section of commodity portfolios. The hazard fear premium exacerbates during periods of adverse sentiment or pessimism in financial markets.

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  • Fernandez-Perez, Adrian & Fuertes, Ana-Maria & Gonzalez-Fernandez, Marcos & Miffre, Joelle, 2020. "Fear of hazards in commodity futures markets," Journal of Banking & Finance, Elsevier, vol. 119(C).
    • Handle: RePEc:eee:jbfina:v:119:y:2020:i:c:s0378426620301680
    DOI: 10.1016/j.jbankfin.2020.105902
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    9. Xiao, Jihong & Wang, Yudong, 2022. "Macroeconomic uncertainty, speculation, and energy futures returns: Evidence from a quantile regression," Energy, Elsevier, vol. 241(C).
    10. Ding, Qian & Huang, Jianbai & Zhang, Hongwei, 2022. "Time-frequency spillovers among carbon, fossil energy and clean energy markets: The effects of attention to climate change," International Review of Financial Analysis, Elsevier, vol. 83(C).
    11. John Hua Fan & Sebastian Binnewies & Sanuri De Silva, 2023. "Wisdom of crowds and commodity pricing," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(8), pages 1040-1068, August.
    12. Borgards, Oliver & Czudaj, Robert L. & Hoang, Thi Hong Van, 2021. "Price overreactions in the commodity futures market: An intraday analysis of the Covid-19 pandemic impact," Resources Policy, Elsevier, vol. 71(C).
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    14. Su, Zhi & Liu, Peng & Fang, Tong, 2022. "Pandemic-induced fear and stock market returns: Evidence from China," Global Finance Journal, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Commodity futures; Fear; Attention; Hazards; Internet searches; Sentiment; Long-short portfolios;
    All these keywords.

    JEL classification:

    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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