An Empirical Analysis of Commodity Convenience Yields

Cantekin Dincerler (), Zeigham Khokher and Timothy Simin ()
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Cantekin Dincerler: The Energy Practice, McKinsey & Company, Two Houston Center, 909 Fannin, Suite 3500, Houston, Texas 77010, USA
Zeigham Khokher: Freeman School of Business, Tulane University, 7 McAllister Drive, New Orleans LA, 70118, USA
Timothy Simin: Smeal School of Business, The Pennsylvania State University, 609 Business Administration Building, University Park, PA 16802, USA

Quarterly Journal of Finance (QJF), 2020, vol. 10, issue 02, 1-27

Abstract: We study convenience yield dynamics using a dataset of inventories to proxy for relative scarcity. We confirm that convenience yields are negatively related to inventories although they plateau during periods of scarcity for crude oil. Inventory withdrawals are non-monotonically related to the convenience yield and they forecast significant futures returns. Testing for the effect of demand shocks, we document both temporary and permanent price components. Importantly, we show that mean reversion in expected equilibrium prices varies with relative scarcity. This result suggests an important bias in contingent claims models in extant practice.

Keywords: Commodity pricing; theory of storage (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (7)

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DOI: 10.1142/S2010139220500093

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