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Financialization and the returns to commodity investments

Scott Main, Scott H. Irwin, Dwight R. Sanders and Aaron Smith

Journal of Commodity Markets, 2018, vol. 10, issue C, 22-28

Abstract: Commodity futures investment grew rapidly after their popularity exploded—along with commodity prices—in the mid-2000s. Numerous individuals and institutions embraced alternative investments for their purported diversification benefits and equity-like returns. We investigate whether the “financialization” of commodity futures markets reduced the risk premiums available to long-only investors in commodities. While energy futures markets generally exhibit a decline in risk premiums after 2004, premiums in all but one non-energy futures market actually increased over the same time period. Overall, the average unconditional return to individual commodity futures markets is approximately equal to zero before and after financialization.

Keywords: Commodity; Financialization; Futures prices; Index fund; Investments; Risk premium; Storable (search for similar items in EconPapers)
JEL-codes: D84 G12 G13 G14 Q13 Q41 (search for similar items in EconPapers)
Date: 2018
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Journal of Commodity Markets is currently edited by Marcel Prokopczuk, Betty Simkins and Sjur Westgaard

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Handle: RePEc:eee:jocoma:v:10:y:2018:i:c:p:22-28