The Theory of Normal Backwardation and Financialization of the Futures Markets

Colin Carter and Cesar Revoredo-Giha

A chapter in Modern Agricultural and Resource Economics and Policy, 2022, pp 391-414 from Springer

Abstract: Abstract Over the past 20 years there has been a large inflow of investment capital into commodity futures markets, a phenomenon known as the financialization of commodities. The purpose of this chapter is to analyse the behavior of commodity futures returns before and since financialization of the markets. In contrast with most of the literature that treats commodities as individual assets, this chapter models futures contracts as part of a balanced portfolio that includes other assets (equities and other commodities) and we control for weekly changes in speculative positions similar to Carter et al. (1983). In this study we allow for two factors giving rise to futures premiums: hedging pressure and systematic risk. We find that the recent poor returns to managed futures trading coincided with a suppressed risk premium.

Keywords: G130; Q020; Q14 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:nrmchp:978-3-030-77760-9_16

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DOI: 10.1007/978-3-030-77760-9_16

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