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Time-varying risk premium: further evidence in agricultural futures markets

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  • J. Frank
  • P. Garcia

Abstract

Research has provided mixed results regarding the presence of a time-varying risk premium in agricultural futures markets. In this article we test for the presence of a time-varying risk premium focusing on the properties of the underlying data. Our results show that accounting for the structural break in the 1970s plays a key role in the findings. In contrast to recent research, we find only limited evidence of time-varying risk premium. For a two-month horizon the corn, soybean meal and hog markets show no signs of a risk premium, while very weak support for a time-varying premium emerges in live cattle. For the four-month horizon, no evidence of a time-varying risk premium appears for any of the markets.

Suggested Citation

  • 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.
  • Handle: RePEc:taf:applec:v:41:y:2009:i:6:p:715-725
    DOI: 10.1080/00036840601019026
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    Cited by:

    1. Armah, Stephen E., 2008. "Establishing the Presence of a Risk Premium in the Cocoa Futures Market: An Econometric Analysis," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6778, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Prehn, Sören & Glauben, Thomas & Loy, Jens-Peter & Pies, Ingo & Will, Matthias Georg, 2014. "The impact of long-only index funds on price discovery and market performance in agricultural futures markets
      [Der Einfluss von Long-only-Indexfonds auf die Preisfindung und das Marktergebnis an la
      ," IAMO Discussion Papers 147, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
    3. Smales, Lee A., 2016. "Trading behavior in S&P 500 index futures," Review of Financial Economics, Elsevier, vol. 28(C), pages 46-55.
    4. repec:oup:erevae:v:45:y:2018:i:1:p:121-142. is not listed on IDEAS
    5. Pandey, Ajay, 2008. "Hedging Effectiveness of Constant and Time Varying Hedge Ratio in Indian Stock and Commodity Futures Markets," IIMA Working Papers WP2008-06-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    6. Feuz, Dillon M., 2009. "A Comparison of the Effectiveness of Using Futures, Options, LRP Insurance, or AGR-Lite Insurance to Manage Risk for Cow-calf Producers," 2009 Conference, April 20-21, 2009, St. Louis, Missouri 53046, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    7. Adjemian, Michael K. & Bruno, Valentina G. & Robe, Michel A., 2016. "Forward‐Looking USDA Price Forecasts," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235931, Agricultural and Applied Economics Association.
    8. Bozic, Marin & Fortenbery, T., 2015. "Price Discovery, Volatility Spillovers and Adequacy of Speculation when Spot Prices are Stationary: The Case of U.S. Dairy Markets," 2015 Conference, August 9-14, 2015, Milan, Italy 211369, International Association of Agricultural Economists.
    9. Bozic, Marin & Newton, John & Thraen, Cameron S. & Gould, Brian W., 2012. "Parametric Bootstrap Tests for Futures Price and Implied Volatility Biases with Application to Rating Livestock Margin Insurance for Dairy Cattle," Staff Papers 135077, University of Minnesota, Department of Applied Economics.
    10. Boetel, Brenda L. & Liu, Donald J., 2008. "Incorporating Structural Changes in Agricultural and Food Price Analysis: An Application to the U.S. Beef and Pork Sectors," Working Papers 44076, University of Minnesota, The Food Industry Center.
    11. Bozic, Marin & Newton, John & Thraen, Cameron S. & Gould, Brian W., 2014. "Parametric Bootstrap Tests for Futures Price and Implied Volatility Biases With Application to Rating Dairy Margin Insurance," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170416, Agricultural and Applied Economics Association.
    12. Prehn, Sören & Glauben, Thomas & Loy, Jens-Peter & Pies, Ingo & Will, Matthias Georg, 2013. "Der Einfluss von Long-only-Indexfonds auf die Preisfindung und das Marktergebnis an landwirtschaftlichen Warenterminmärkten
      [The impact of long-only index funds on the price development and the mar
      ," IAMO Discussion Papers 142, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
    13. Prehn, Soren & Glauben, Thomas & Loy, Jens-Peter & Pies, Ingo & Will, Matthias Georg, 2014. "Der Einfluss Von Long-Only-Indexfonds Auf Die Preisbildung Und Das Marktergebnis An Warenterminmärkten," 54th Annual Conference, Goettingen, Germany, September 17-19, 2014 187363, German Association of Agricultural Economists (GEWISOLA).
    14. Schnake, Kristin N. & Karali, Berna & Dorfman, Jeffrey H., 2012. "The Informational Content of Distant-Delivery Futures Contracts," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 37(2), August.
    15. Li, Ziran, 2017. "Three essays on commodity markets," ISU General Staff Papers 201701010800006361, Iowa State University, Department of Economics.
    16. Adjemian, Michael K. & Garcia, Philip & Irwin, Scott & Smith, Aaron, 2013. "Non-Convergence in Domestic Commodity Futures Markets: Causes, Consequences, and Remedies," Economic Information Bulletin 155381, United States Department of Agriculture, Economic Research Service.

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