Returns to Traders and Existence of a Risk Premium in Agricultural Futures Markets

Nicole M. Aulerich and Scott H. Irwin

No 285322, 2010 Conference, April 19-20, 2010, St. Louis, Missouri from NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management

Abstract: This paper analyzes the existence of a risk premium following the Keynesian theory of normal backwardation. A natural experiment using actual trading observations of commodity index traders is used to determine if passively holding long positions opposite hedgers earns a risk premium. Daily profits of traders are calculated in 12 markets from 2000-2009 using data from the CFTC internal large trader reporting system. Results show the commodity index traders have negative profits in 9 out of 12 commodities, resulting in an approximate net loss of -$6.9 billion. A measure of monthly return on investment does not show consistent positive profits and on average the return is negative. The evidence does not support the existence of a positive risk premium.

Keywords: Marketing (search for similar items in EconPapers)
Date: 2010-04
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Persistent link: https://EconPapers.repec.org/RePEc:ags:nccc10:285322

DOI: 10.22004/ag.econ.285322

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