Risk premia and seasonality in commodity futures

Constantino Hevia, Ivan Petrella and Martin Sola

No 591, Bank of England working papers from Bank of England

Abstract: ​We develop and estimate a multifactor affine model of commodity futures that allows for stochastic variations in seasonality. We show conditions under which the yield curve and the cost-of-carry curve adopt augmented Nelson and Siegel functional forms. This restricted version of the model is parsimonious, does not suffer from identification problems, and matches well the yield curve and futures curve over time. We estimate the model using heating oil futures prices over the period 1984–2012. We find strong evidence of stochastic seasonality in the data. We analyse risk premia in futures markets and discuss two traditional theories of commodity futures: the theory of storage and the theory of normal backwardation. The data strongly supports the theory of storage.

Keywords: Commodity futures; Nelson and Siegel; seasonality; risk premium; theory of storage (search for similar items in EconPapers)
JEL-codes: E43 G13 Q02 Q40 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2016-04-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Risk premia and seasonality in commodity futures (2018)
Working Paper: Risk Premia and Seasonality in Commodity Futures (2016)
Working Paper: Risk Premia and Seasonality in Commodity Futures (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0591

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