EconPapers    
Economics at your fingertips  
 

Risk premia in crude oil futures prices

James Hamilton and Jing Cynthia Wu

Journal of International Money and Finance, 2014, vol. 42, issue C, 9-37

Abstract: If commercial producers or financial investors use futures contracts to hedge against commodity price risk, the arbitrageurs who take the other side of the contracts may receive compensation for their assumption of nondiversifiable risk in the form of positive expected returns from their positions. We show that this interaction can produce an affine factor structure to commodity futures prices, and develop new algorithms for estimation of such models using unbalanced data sets in which the duration of observed contracts changes with each observation. We document significant changes in oil futures risk premia since 2005, with the compensation to the long position smaller on average in more recent data. This observation is consistent with the claim that index-fund investing has become more important relative to commerical hedging in determining the structure of crude oil futures risk premia over time.

Keywords: Oil prices; Speculation; Futures risk premium; Affine term structure models (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (182)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560613001058
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Risk Premia in Crude Oil Futures Prices (2013) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:42:y:2014:i:c:p:9-37

DOI: 10.1016/j.jimonfin.2013.08.003

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).

 
Page updated 2024-12-28
Handle: RePEc:eee:jimfin:v:42:y:2014:i:c:p:9-37