The skewness of commodity futures returns

Adrian Fernandez-Perez, Bart Frijns, Ana-Maria Fuertes and Joelle Miffre

Journal of Banking & Finance, 2018, vol. 86, issue C, 143-158

Abstract: This article studies the relation between the skewness of commodity futures returns and expected returns. A trading strategy that takes long positions in commodity futures with the most negative skew and shorts those with the most positive skew generates significant excess returns that remain after controlling for exposure to well-known risk factors. A tradeable skewness factor explains the cross-section of commodity futures returns beyond exposures to standard risk premia. The impact that skewness has on future returns is explained by investors’ preferences for skewness under cumulative prospect theory and selective hedging practices.

Keywords: Skewness; Commodities; Futures pricing; Selective hedging (search for similar items in EconPapers)
JEL-codes: G13 G14 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (72)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:86:y:2018:i:c:p:143-158

DOI: 10.1016/j.jbankfin.2017.06.015

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