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Prices of Risk Estimation for Commodity Factors

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  • Kei Nakagawa
  • Ryuta Sakemoto

Abstract

This study investigates the prices of risk in cross‐sectional commodity futures portfolios using a three‐pass regression approach that is robust to model specification. We find that the prices of risk for commodity basis and value factors are important, with values of 1.2% and 2.0% per month, respectively. Moreover, we observe that the commodity factors do not price cross‐sectional equity portfolios, resulting in a combination of the equity market and commodity factor portfolios achieving a high Sharpe ratio. Additionally, we demonstrate that the equity market factor has recently become more strongly associated with the cross‐sectional commodity futures portfolios, suggesting the effects of financialization.

Suggested Citation

  • Kei Nakagawa & Ryuta Sakemoto, 2025. "Prices of Risk Estimation for Commodity Factors," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 45(11), pages 2151-2165, November.
    • Handle: RePEc:wly:jfutmk:v:45:y:2025:i:11:p:2151-2165
    DOI: 10.1002/fut.70032
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