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Volatility risk premia and future commodities returns

Jose Ornelas () and Roberto Mauad

No 619, BIS Working Papers from Bank for International Settlements

Abstract: This paper extends the empirical literature on volatility risk premium (VRP) and future returns by analysing the predictive ability of commodity currency VRP and commodity VRP. The empirical evidence throughout this paper provides support for a positive relationship of commodity currencies VRP and future commodity returns, but only for the period after the 2008 global financial crisis. This predictability survives the inclusion of control variables like equity VRP and past currency returns. Furthermore, gold VRP also has the ability to predict future commodity returns. However, this predictability is restricted to precious metals when control variables are considered.

Keywords: Commodity predictability; volatility risk premium; commodity currencies (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk, nep-rmg and nep-upt
Date: 2017-03
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