The commodity futures basis—the difference between the first and second futures prices—is known to forecast commodity futures returns, arguably through its relation with the convenience yield. We propose a refined measure of the basis, dubbed the relative basis, which is the difference...

This paper studies the dynamic interaction between the net positions of traders and risk premiums in commodity futures markets. Short-term position changes are mainly driven by the liquidity demands of non-commercial traders, while long-term variation is primarily driven by the hedging demands...

Research on electricity futures markets has to date not explored the role that market liquidity may play in determining risk premia. Further, no detailed empirical examination of both liquidity and risk premia in the New Zealand electricity futures market are discernible. Using data from October...

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...

Investment by oil firms positively affects the futures basis and negatively predicts excess returns on crude oil futures. I build an equilibrium model of drilling, exploration, and storage to understand these facts. Firms' capital stock lowers extraction costs as firms drill in increasingly...

While much is known about the financialization of commodities, less is known about how to profitably invest in commodities. We develop a four-factor asset pricing model of commodity returns. Our four-factor model prices both commodity spot and term risk premia in an intuitive manner related to...

Options on crude oil futures are the most actively traded commodity options. We develop a class of computationally efficient discrete-time jump models that allow for closed-form option valuation, and we use crude oil futures and options data to investigate the economic importance of jumps and...

This paper studies the spread of Brent-WTI futures prices using a no-arbitrage term structure model with one common and two latent idiosyncratic risk factors. We document more negative risk premia for WTI than for Brent, and the differences are more pronounced at longer maturities. The...

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...

This paper studies how volatility affects the risk premium in crude oil futures through a discrete-time term structure model with long-run and short-run GARCH-type volatility components. Estimated using WTI crude oil futures data from January 1990 to July 2016, our model simultaneously matches...