Financialization and speculators risk premia in commodity futures markets

Colin Carter and Cesar Revoredo-Giha

International Review of Financial Analysis, 2023, vol. 88, issue C

Abstract: J.M. Keynes coined the term normal backwardation, a situation where a futures price for a particular expiry month is less than the expected spot price for that month. He argued hedgers pay speculators a risk premium, giving rise to normal backwardation. We study the behavior of commodity futures before and since financialization of the markets, which started about 20 years ago. We find the poor returns to managed futures in recent years are likely due to the impact of financialization and the associated outside money suppressing the futures risk premium.

Keywords: Normal backwardation; Futures risk premium; Commodity market financialization (search for similar items in EconPapers)
JEL-codes: G11 G13 Q02 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:88:y:2023:i:c:s1057521923002077

DOI: 10.1016/j.irfa.2023.102691

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