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New Evidence on Agricultural Commodity Return Performance under Time-Varying Risk

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  • Bruce Bjornson
  • Colin A. Carter

Abstract

Holding commodity stocks is a major investment that commodity producers, merchants, and processors must continually manage. In this paper we study the conditional risk and return characteristics of commodities. We use a generalized method of moments estimator in a model of conditional expected returns under a single-beta asset pricing theory framework, allowing both the risk premium and the beta to vary with time. We find that expected returns to commodities are lower during times of high interest rates, expected inflation, and economic growth. This suggests that commodities provide a natural hedge against business cycles. Copyright 1997, Oxford University Press.

Suggested Citation

  • 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.
    • Handle: RePEc:oup:ajagec:v:79:y:1997:i:3:p:918-930
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    File URL: http://hdl.handle.net/10.2307/1244432
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    Citations

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    Cited by:

    1. Irwin, Scott H. & Sanders, Dwight R., 2012. "Financialization and Structural Change in Commodity Futures Markets," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 44(3), pages 1-26, August.
    2. Scott H. Irwin & Dwight R. Sanders, 2011. "Index Funds, Financialization, and Commodity Futures Markets," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 33(1), pages 1-31.
    3. Cotter, John & Eyiah-Donkor, Emmanuel & Potì, Valerio, 2023. "Commodity futures return predictability and intertemporal asset pricing," Journal of Commodity Markets, Elsevier, vol. 31(C).
    4. Cochran, Steven J. & Mansur, Iqbal & Odusami, Babatunde, 2012. "Volatility persistence in metal returns: A FIGARCH approach," Journal of Economics and Business, Elsevier, vol. 64(4), pages 287-305.
    5. Mukherjee, Dr. Kedar nath, 2011. "Commodity investments: opportunities for Indian institutional investors," MPRA Paper 33510, University Library of Munich, Germany.
    6. Gonzalo Cortazar & Ivo Kovacevic & Eduardo S. Schwartz, 2013. "Commodity and Asset Pricing Models: An Integration," NBER Working Papers 19167, National Bureau of Economic Research, Inc.
    7. Daskalaki, Charoula & Skiadopoulos, George & Topaloglou, Nikolas, 2017. "Diversification benefits of commodities: A stochastic dominance efficiency approach," Journal of Empirical Finance, Elsevier, vol. 44(C), pages 250-269.
    8. Hollstein, Fabian & Prokopczuk, Marcel & Tharann, Björn & Wese Simen, Chardin, 2021. "Predictability in commodity markets: Evidence from more than a century," Journal of Commodity Markets, Elsevier, vol. 24(C).
    9. J. Frank & P. Garcia, 2009. "Time-varying risk premium: further evidence in agricultural futures markets," Applied Economics, Taylor & Francis Journals, vol. 41(6), pages 715-725.
    10. Zura Kakushadze & Juan Andrés Serur, 2018. "151 Trading Strategies," Springer Books, Springer, number 978-3-030-02792-6, November.
    11. Changyun Wang, 2003. "The behavior and performance of major types of futures traders," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(1), pages 1-31, January.
    12. Nguyen, Duc Khuong & Topaloglou, Nikolas & Walther, Thomas, 2020. "Asset Classes and Portfolio Diversification: Evidence from a Stochastic Spanning Approach," MPRA Paper 103870, University Library of Munich, Germany.
    13. Georg V. Lehecka, 2014. "Have food and financial markets integrated?," Applied Economics, Taylor & Francis Journals, vol. 46(18), pages 2087-2095, June.
    14. Scott H. Irwin & Dwight R. Sanders & Aaron Smith & Scott Main, 2020. "Returns to Investing in Commodity Futures: Separating the Wheat from the Chaff," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(4), pages 583-610, December.
    15. Sadorsky, Perry, 2002. "Time-varying risk premiums in petroleum futures prices," Energy Economics, Elsevier, vol. 24(6), pages 539-556, November.
    16. Nicole M. Moran & Scott H. Irwin & Philip Garcia, 2020. "Who Wins and Who Loses? Trader Returns and Risk Premiums in Agricultural Futures Markets," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(4), pages 611-652, December.
    17. Lin, Hua & Fortenbery, T. Randall, 2006. "Risk Premiums and the Storage of Agricultural Commodities," Staff Papers 10277, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    18. Cortazar, Gonzalo & Kovacevic, Ivo & Schwartz, Eduardo S., 2015. "Expected commodity returns and pricing models," Energy Economics, Elsevier, vol. 49(C), pages 60-71.
    19. Daskalaki, Charoula & Skiadopoulos, George & Topaloglou, Nikolas, 2017. "Diversification benefits of commodities: A stochastic dominance efficiency approach," Journal of Empirical Finance, Elsevier, vol. 44(C), pages 250-269.
    20. Lehecka, Georg V., 2013. "Have food and financial markets integrated? An empirical assessment on aggregate data," 53rd Annual Conference, Berlin, Germany, September 25-27, 2013 156108, German Association of Agricultural Economists (GEWISOLA).
    21. Carter, Colin A., 1999. "Commodity futures markets: a survey," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 43(2), pages 1-39, June.

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