Expected Spot Prices and the Dynamics of Commodity Risk Premia

Jacopo Piana and Daniele Bianchi
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Daniele Bianchi: University of Warwick

No 1149, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: We analyse a novel time series of investors expectations on future commodity spot prices, and show that a model with adaptive learning can replicate investors' forecasts. We use this framework to back out the dynamics of the (ex-ante) risk premia for different commodities and maturities, and provide evidence that commodity risk premia are time-varying and their dynamics is predominantly due to the changing nature of risk sharing and appetite, as proxied by open interest, hedging pressure and time-series momentum. Finally, we show that the explanatory power of alternative factors is not constant over time, both across commodities and time horizons.

Date: 2017
New Economics Papers: this item is included in nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:1149

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