Prices of Risk Estimation for Commodity Factors

Kei Nakagawa and Ryuta Sakemoto

Journal of Futures Markets, 2025, vol. 45, issue 11, 2151-2165

Abstract: This study investigates the prices of risk in cross‐sectional commodity futures portfolios using a three‐pass regression approach that is robust to model specification. We find that the prices of risk for commodity basis and value factors are important, with values of 1.2% and 2.0% per month, respectively. Moreover, we observe that the commodity factors do not price cross‐sectional equity portfolios, resulting in a combination of the equity market and commodity factor portfolios achieving a high Sharpe ratio. Additionally, we demonstrate that the equity market factor has recently become more strongly associated with the cross‐sectional commodity futures portfolios, suggesting the effects of financialization.

Date: 2025
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https://doi.org/10.1002/fut.70032

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jfutmk:v:45:y:2025:i:11:p:2151-2165

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