Macroeconomic factors and the cross-section of commodity futures returns

Hua Shang, Ping Yuan and Lin Huang

International Review of Economics & Finance, 2016, vol. 45, issue C, 316-332

Abstract: This study investigates whether macroeconomic factors can explain the cross-section of commodity futures returns. Based on the intertemporal capital asset pricing model, the theory of storage, and in an open economy framework, we derive a four-factor asset pricing model. Our investigation of 14 components of the Standard & Poor's Goldman Sachs Commodity Index from various sectors shows that long-only investors holding commodity futures contracts are compensated for taking on the unexpected real exchange rate risk. The result is robust for various estimation methods and various definitions of the factors. Our result is consistent with the argument that the exchange rate reflects information about future movements in the commodity markets.

Keywords: Commodity futures returns; Macroeconomic variables; Real exchange rate; Risk premium (search for similar items in EconPapers)
JEL-codes: E31 E44 G12 G13 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:45:y:2016:i:c:p:316-332

DOI: 10.1016/j.iref.2016.06.008

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