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Systematic Risk, Hedging Pressure, and Risk Premiums in Futures Markets

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  • Bessembinder, Hendrik

Abstract

I examine the uniformity of risk pricing in futures and asset markets. Tests against a general alternative do not reject complete integration of futures and asset markets. As predicted, estimates of the "zero-beta" rate for futures are close to zero, and premiums for systematic risk do not differ significantly across assets and futures. There is, however, evidence consistent with a specific alternative model presented by Hirshleifer (1988). Returns in foreign currency and agricultural futures vary with the net holdings of hedgers, after controlling for systematic risk. These results imply a degree of market segmentation and support hedging pressure as a determinant of futures premiums. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Suggested Citation

  • Bessembinder, Hendrik, 1992. "Systematic Risk, Hedging Pressure, and Risk Premiums in Futures Markets," Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 637-667.
  • Handle: RePEc:oup:rfinst:v:5:y:1992:i:4:p:637-67
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