fundamentals of commodity futures returns
By: Gary B. Gorton, Fumio Hayashi, K. Geert Rouwenhorst.
Contributors: Hayashi, Fumio.; Rouwenhorst, K. Geert.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13249.; Working paper series (National Bureau of Economic Research) -- working paper no. 13249.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 45
Subjects: Commodity futures -- Mathematical models
Description: Commodity futures risk premiums vary across commodities and over time depending on the level of physical inventories, as predicted by the Theory of Storage. Using a comprehensive dataset on 31 commodity futures and physical inventories between 1969 and 2006, we show that the convenience yield is a decreasing, non-linear relationship of inventories. Price measures, such as the futures basis, prior futures returns, and spot returns reflect the state of inventories and are informative about commodity futures risk premiums. The excess returns to Spot and Futures Momentum and Backwardation strategies stem in part from the selection of commodities when inventories are low. Positions of futures markets participants are correlated with prices and inventory signals, but we reject the Keynesian "hedging pressure" hypothesis that these positions are an important determinant of risk premiums.
Notes: "July 2007."

Includes bibliographical references (p. 43-45).

Also available in PDF from the NBER world wide web site (www.nber.org).