Time Varying Risk Premia in Futures Markets

Graciela Kaminsky and Manmohan Kumar

No 1990/116, IMF Working Papers from International Monetary Fund

Abstract: This paper undertakes an econometric investigation into the presence of risk premium in commodity futures markets. The statistical tests are derived from a formal model of asset pricing and are applied to futures prices in a variety of commodity markets. The results suggest that for several commodities there is evidence of a time varying risk premium, particularly in futures contracts maturing six months ahead. The implications of the study for the efficiency of the futures markets and the costs of using these markets for hedging are also noted.

Keywords: WP; null hypothesis; expected return; commodity risk; futures risk premium; excess return; portfolio asset; risk premia; corn futures; risk premium hypothesis; Return on investment; Futures markets; Futures; Agricultural commodities (search for similar items in EconPapers)
Pages: 32
Date: 1990-12-01
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