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A comparison of the convenience yield and interest-adjusted basis

Julien Fouquau and Pierre Six

Finance Research Letters, 2015, vol. 14, issue C, 142-149

Abstract: The convenience yield is a major notion in commodity markets but this variable is unobservable. Consequently, two methods are generally used to test stylized facts regarding commodity convenience yields: the first method relies on a convenience yield filtered from derivative prices while the second one directly uses an observable proxy, the interest-adjusted basis. We believe that our study is the first to theoretically prove that these two methods do not provide the same results. We confirm this finding by analyzing the copper and oil markets.

Keywords: Theory of storage; Commodity futures markets; Convenience yield; Interest-adjusted basis (search for similar items in EconPapers)
JEL-codes: G11 G12 G13 Q02 (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:eee:finlet:v:14:y:2015:i:c:p:142-149