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Fundamentals of Sharpe Ratios in Storable Commodity Markets

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  • Attaoui, Sami
  • Six, Pierre

Abstract

We determine model free estimates of the Sharpe ratios of the spot price and the basis for storable commodities. We use these estimates to conduct a thorough analysis of these Sharpe ratios across four commodity classes - Energy, Base Metals, Grains and Precious Metals, that cover twelve individual commodities. We find similar results across the twelve commodities and the Sharpe ratios of the two risks in terms, of descriptive statistics, seasonality, meanreversion and determinants. Our results have major implications for the understing of the risks of commodities under the physical probability measure.

Suggested Citation

  • Attaoui, Sami & Six, Pierre, 2023. "Fundamentals of Sharpe Ratios in Storable Commodity Markets," 2023 Conference, April 24-25, 2023, St. Louis, Missouri 379015, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:nccc23:379015
    DOI: 10.22004/ag.econ.379015
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    References listed on IDEAS

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    1. Cortazar, Gonzalo & Kovacevic, Ivo & Schwartz, Eduardo S., 2015. "Expected commodity returns and pricing models," Energy Economics, Elsevier, vol. 49(C), pages 60-71.
    2. Jaime Casassus & Pierre Collin‐Dufresne, 2005. "Stochastic Convenience Yield Implied from Commodity Futures and Interest Rates," Journal of Finance, American Finance Association, vol. 60(5), pages 2283-2331, October.
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