EconPapers    
Economics at your fingertips  
 

The Fundamentals of Commodity Futures Returns

Gary Gorton, Fumio Hayashi and K. Rouwenhorst

Yale School of Management Working Papers from Yale School of Management

Abstract: Commodity futures risk premiums vary across commodities and over time depending on the level of physical inventories, as predicted by the Theory of Storage. Using a comprehensive dataset on 31 commodity futures and physical inventories between 1969 and 2006, we show that the convenience yield is a decreasing, non-linear relationship of inventories. Price measures, such as the futures basis ("backwardation"), prior futures returns, and prior spot returns reflect the state of inventories and are informative about commodity futures risk premiums. The excess returns to Spot and Futures Momentum and Backwardation strategies stem in part from the selection of commodities when inventories are low. Positions of futures markets participants are correlated with prices and inventory signals, but we reject the Keynesian "hedging pressure" hypothesis that these positions are an important determinant of risk premiums.

Keywords: Commodity; Futures; Theory of Storage; Inventories; Backwardation; Hedging Pressure; Futures Trading (search for similar items in EconPapers)
Date: 2007-06-01, Revised 2008-10-01
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (8) Track citations by RSS feed

Downloads: (external link)
http://icfpub.som.yale.edu/publications/2605 (application/pdf)

Related works:
Journal Article: The Fundamentals of Commodity Futures Returns (2013) Downloads
Working Paper: The Fundamentals of Commodity Futures Returns (2007) 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: http://EconPapers.repec.org/RePEc:ysm:somwrk:amz2605

Access Statistics for this paper

More papers in Yale School of Management Working Papers from Yale School of Management Contact information at EDIRC.
Series data maintained by ().

 
Page updated 2017-07-21
Handle: RePEc:ysm:somwrk:amz2605