A tale of two premiums revisited

This paper investigates the effect of the “financialization” of commodity markets in terms of pricing. I explore whether the emergence of commodity index traders (CITs) affects weekly returns and turnover during the roll periods. I split the sample (1994–2017) into prefinancialization (1994–2003) and postfinancialization (2004–2017). I directly test whether the CIT market share (CIT/open interest) contributes to commodity returns and whether risk adjustments (based on momentum, basis, basis‐momentum, open interest, crowding, and average factors) alter liquidity and insurance premiums documented in Kang, Rouwenhorst, and Tang. I also examine how the financialization affects liquidity and insurance premiums. Finally, since previous results are obtained with Fama–MacBeth regressions, I use an alternative method to test how liquidity and insurance premiums determine commodity returns.