The Term Structure of Commodity Risk Premiums and the Role of Hedging

Jonathan Hambur and Nick Stenner
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Jonathan Hambur: Reserve Bank of Australia
Nick Stenner: Reserve Bank of Australia

RBA Bulletin (Print copy discontinued), 2016, 57-66

Abstract: A standard theory used to explain commodity futures prices decomposes the futures price into the expected spot price at maturity of the futures contract and a risk premium. This article investigates the term structure of commodity risk premiums. We find that risk premiums vary across futures contract maturities, and that the term structure of commodity risk premiums differs between commodities. Furthermore, the risk premiums on crude oil and heating oil have fallen since the mid 2000s, consistent with increased financial investment in these futures markets. This article also outlines evidence to suggest that the existence of a commodity risk premium is related to the hedging activities of market participants

Keywords: Commodity risk premiums; net hedging pressure; commodity futures prices; commodity financialisation (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbabul:mar2016-07

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