Production Risk and the Futures Price Risk Premium?

Frank Asche, Bård Misund and Atle Oglend

No 2015/13, UiS Working Papers in Economics and Finance from University of Stavanger

Abstract: Typically, the risk premium in futures prices is examined by regressing the ex post risk premium on the ex ante spot-futures price basis. However, recent studies suggest that industry specific production factors as well as the basis can influence the relationship between spot and futures prices. The Atlantic salmon market is a market where risk associated with special production characteristics may affect the spot-forward relationship. Futures markets have recently been introduced for aquaculture products, and an understanding of the specific risk factors is important if these markets are to succeed. Using spot and futures prices as well as a set of industry specific variables, we seek to explain the variation in the risk premium in salmon futures by the variation in the basis. We find that shocks in key production variables help explain the variation in the risk premium along the forward curve.

Keywords: Atlantic salmon markets; Forward prices; Risk premium (search for similar items in EconPapers)
JEL-codes: G13 G14 Q22 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2015-12-18
New Economics Papers: this item is included in nep-agr
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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