In this paper we investigate risk premiums in commodity convenience yields. The analysis consists of two steps. First, we use a three-factor model to extract monthly convenience yields from a broad sample of commodity futures. Second, we estimate multi-factor asset pricing models with...

We explore whether there are common factors in the cross-section of individual commodity futures returns. We test various asset pricing models which have been employed for the equities market as well as models motivated by commodity pricing theories. The use of these families of models allows us...

Gorton and Rouwenhorst (2006) examined commodity futures returns over the period July 1959 to December 2004 based on an equally-weighted index. They found that fully collateralized commodity futures had historically offered the same return and Sharpe ratio as U.S. equities, but were negatively...

We develop an extended mean-variance model to investigate the relationship between variance risk premia (VRP) and expected futures returns in the commodity market. In the presence of stochastic variance, commodity producers trade both futures and options to hedge their exposure to commodity...

We study the links between expectations, fundamentals, and asset returns using the rich empirical setup offered by commodity markets. We find that survey-based expectations predict future fundamentals, but are not significant predictors of future returns. Expectations of returns are correlated...

Using hand-collected data of commodity futures contracts going back to 1877, we replicate in the pre-sample history the well-documented cross-sectional commodity factor premia of momentum, value and basis. All three premia remain significantly positive in the additional 80-plus years of...

Implied correlation, jointly extracted from index and stock options, is a robust predictor of long-term market returns. We document that its predictive power stems from its role as a leading procyclical state variable, predicting future investment opportunities, that is, financial-market risks...

We propose a novel measure of the ex-ante commodity downside-risk premium (CDP) for each commodity based on a term structure model of commodity futures. Our theory-based CDP, capturing forward-looking information in the futures markets, outperforms well-known characteristics in explaining the...

We find out-of-sample predictability of commodity futures excess returns using forecast combinations of 28 potential predictors. Such gains in forecast accuracy translate into economically significant improvements in certainty equivalent returns and Sharpe ratios for a mean-variance investor....