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Macroeconomic factors and the cross-section of commodity futures returns

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  • Shang, Hua
  • Yuan, Ping
  • Huang, Lin

Abstract

This study investigates whether macroeconomic factors can explain the cross-section of commodity futures returns. Based on the intertemporal capital asset pricing model, the theory of storage, and in an open economy framework, we derive a four-factor asset pricing model. Our investigation of 14 components of the Standard & Poor's Goldman Sachs Commodity Index from various sectors shows that long-only investors holding commodity futures contracts are compensated for taking on the unexpected real exchange rate risk. The result is robust for various estimation methods and various definitions of the factors. Our result is consistent with the argument that the exchange rate reflects information about future movements in the commodity markets.

Suggested Citation

  • Shang, Hua & Yuan, Ping & Huang, Lin, 2016. "Macroeconomic factors and the cross-section of commodity futures returns," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 316-332.
  • Handle: RePEc:eee:reveco:v:45:y:2016:i:c:p:316-332
    DOI: 10.1016/j.iref.2016.06.008
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    Cited by:

    1. Bakas, Dimitrios & Triantafyllou, Athanasios, 2018. "The impact of uncertainty shocks on the volatility of commodity prices," Journal of International Money and Finance, Elsevier, vol. 87(C), pages 96-111.
    2. Ye, Wuyi & Guo, Ranran & Jiang, Ying & Liu, Xiaoquan & Deschamps, Bruno, 2019. "Professional macroeconomic forecasts and Chinese commodity futures prices," Finance Research Letters, Elsevier, vol. 28(C), pages 130-136.
    3. Fernandez, Viviana, 2020. "The predictive power of convenience yields," Resources Policy, Elsevier, vol. 65(C).
    4. Mo, Di & Gupta, Rakesh & Li, Bin & Singh, Tarlok, 2018. "The macroeconomic determinants of commodity futures volatility: Evidence from Chinese and Indian markets," Economic Modelling, Elsevier, vol. 70(C), pages 543-560.
    5. Liu, Lu & Zhang, Xiang, 2019. "Financialization and commodity excess spillovers," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 195-216.
    6. Barbi, Massimiliano & Romagnoli, Silvia, 2018. "Skewness, basis risk, and optimal futures demand," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 14-29.
    7. Liyun Zhou & Chunpeng Yang, 2019. "Differences in the effects of seller-initiated versus buyer-initiated crowded trades in stock markets," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 14(4), pages 859-890, December.
    8. Martínez, Beatriz & Torró, Hipòlit, 2018. "Analysis of risk premium in UK natural gas futures," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 621-636.

    More about this item

    Keywords

    Commodity futures returns; Macroeconomic variables; Real exchange rate; Risk premium;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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