Convenience yield risk

Marcel Prokopczuk, Lazaros Symeonidis, Chardin Wese Simen and Robert Wichmann

Energy Economics, 2023, vol. 120, issue C

Abstract: We develop a framework to quantify the convenience yield risk (CYR) inherent to each commodity futures market. Implementing our approach, we document that our novel CYR measure is informative about future commodity returns. In panel regressions, the CYR predicts future returns with a positive sign. Economically, a strategy that opens long positions in commodity markets with a higher than median CYR signal and sells the remaining commodities yields an average return of 6.93% per year. The performance of the CYR strategy cannot be explained by exposure to existing commodity strategies or other variables that capture changes in the investment opportunity set.

Keywords: Commodity risk factors; Convenience yield; Futures curve; Return predictability (search for similar items in EconPapers)
JEL-codes: G12 Q02 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:120:y:2023:i:c:s0140988323000348

DOI: 10.1016/j.eneco.2023.106536

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