Risk Premia and Seasonality in Commodity Futures

Ivan Petrella, Martin Sola and Constantino Hevia

No 11169, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We develop and estimate a multifactor affine model of commodity futures that allows for stochastic seasonality. We document the existence of stochastic seasonal fluctuations in commodity futures and that properly accounting for the cost-of-carry curve requires at least three factors. We estimate the model using data on heating oil futures and analyze the contribution of the factors to risk premia. Correctly specifying seasonality as stochastic is important to avoid erroneously assigning those fluctuations to other risk factors. We also estimate a nonlinear version of the model that imposes the zero lower bound on interest rates and find similar results.

Keywords: Commodity futures; Nelson and siegel; Seasonality; risk premium; Theory of storage (search for similar items in EconPapers)
JEL-codes: C22 G12 G13 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-agr
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Risk premia and seasonality in commodity futures (2018)
Working Paper: Risk premia and seasonality in commodity futures (2016)
Working Paper: Risk Premia and Seasonality in Commodity Futures (2016)
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