Determinants Of Hedging And Risk Premia In Commodity Futures Markets

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Determinants of Hedging and Risk Premia in Commodity Futures Markets

Author : David A. Hirshleifer
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Determinants of Hedging and Risk Premia in Commodity Futures Markets by : David A. Hirshleifer

Download or read book Determinants of Hedging and Risk Premia in Commodity Futures Markets written by David A. Hirshleifer and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the determinants of commodity futures hedging and of risk premia arising from covariation of the futures price with stock market returns, and with the revenues of producers. Owing to supply shocks that stochastically redistribute real wealth (surplus) between producers and consumers, and to limited participation in the futures market, the total risk premium in the model is not proportional to the contract's covariance with aggregate consumption. Stock market variability interacts with the incentive to hedge, causing the producer hedging component of the risk premium to increase (decrease) with income elasticity, for a normal (inferior) good. Production costs that depend on output raise the premium. We argue that output and demand shocks will typically be positively correlated, raising the premium. High supply elasticity reduces the absolute hedging premium by reducing the variability of spot price and revenue.

Determinants of Trader Profits in Commodity Futures Markets

Author : Michaël Dewally
Publisher :
ISBN 13 :
Total Pages : 56 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Determinants of Trader Profits in Commodity Futures Markets by : Michaël Dewally

Download or read book Determinants of Trader Profits in Commodity Futures Markets written by Michaël Dewally and published by . This book was released on 2013 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using proprietary energy futures position data, we provide evidence that mean hedger profits are negative while speculator (especially hedge fund) profits are positive; that speculators and hedgers who hold long (short) positions when likely hedgers in aggregate are net short (long) have higher profits than traders whose net positions align with likely hedgers; and that profits on long positions vary inversely with inventories and directly with price volatility. These findings are consistent with the risk premium, hedging pressure, and modern theory of storage hypotheses, respectively. Further, our findings suggest that commodity futures momentum may be due largely to hedging pressure.

Time Varying Risk Premia in Futures Markets

Author : Mr.Manmohan S. Kumar
Publisher : International Monetary Fund
ISBN 13 : 145194196X
Total Pages : 32 pages
Book Rating : 4.4/5 (519 download)

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Book Synopsis Time Varying Risk Premia in Futures Markets by : Mr.Manmohan S. Kumar

Download or read book Time Varying Risk Premia in Futures Markets written by Mr.Manmohan S. Kumar and published by International Monetary Fund. This book was released on 1990-12-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Risk Premia and Price Volatility in Futures Markets

Author : G. S. Maddala
Publisher :
ISBN 13 :
Total Pages : 52 pages
Book Rating : 4.0/5 ( download)

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Book Synopsis Risk Premia and Price Volatility in Futures Markets by : G. S. Maddala

Download or read book Risk Premia and Price Volatility in Futures Markets written by G. S. Maddala and published by . This book was released on 1990 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Hedging with Commodity Futures

Author : Su Dai
Publisher : GRIN Verlag
ISBN 13 : 3656539219
Total Pages : 80 pages
Book Rating : 4.6/5 (565 download)

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Book Synopsis Hedging with Commodity Futures by : Su Dai

Download or read book Hedging with Commodity Futures written by Su Dai and published by GRIN Verlag. This book was released on 2013-11-12 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2013 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,7, University of Mannheim, language: English, abstract: The commodity futures contract is an agreement to deliver a specific amount of commodity at a future time . There are usually choices of deliverable grades, delivery locations and delivery dates. Hedging belongs to one of the fundamental functions of futures market. Futures can be used to help producers and buyers protect themselves from price risk arising from many factors. For instance, in crude oil commodities, price risk occurs due to disrupted oil supply as a consequence of political issues, increasing of demand in emerging markets, turnaround in energy policy from the fossil fuel to the solar and efficient energy, etc. By hedging with futures, producers and users can set the prices they will receive or pay within a fixed range. A hedger takes a short position if he/she sells futures contracts while owning the underlying commodity to be delivered; a long position if he/she purchases futures contracts. The commonly known basis is defined as the difference between the futures and spot prices, which is mostly time-varying and mean-reverting. Due to such basis risk, a naïve hedging (equal and opposite) is unlikely to be effective. With the popularity of commodity futures, how to determine and implement the optimal hedging strategy has become an important issue in the field of risk management. Hedging strategies have been intensively studied since the 1960s. One of the most popular approaches to hedging is to quantify risk as variance, known as minimum-variance (MV) hedging. This hedging strategy is based on Markowitz portfolio theory, resting on the result that “a weighted portfolio of two assets will have a variance lower than the weighted average variance of the two individual assets, as long as the two assets are not perfectly and positively correlated.” MV strategy is quite well accepted, however, it ignores the expected return of the hedged portfolio and the risk preference of investors. Other hedging models with different objective functions have been studied intensively in hedging literature. Due to the conceptual simplicity, the value at risk (VaR) and conditional value at risk (C)VaR have been adopted as the hedging risk objective function. [...]

Capturing the Risk Premium of Commodity Futures

Author : Devraj Basu
Publisher :
ISBN 13 :
Total Pages : 37 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Capturing the Risk Premium of Commodity Futures by : Devraj Basu

Download or read book Capturing the Risk Premium of Commodity Futures written by Devraj Basu and published by . This book was released on 2015 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: We construct long-short factor mimicking portfolios that capture the hedging pressure risk premium of commodity futures. We consider single sorts based on the open interests of either hedgers or speculators, as well as double sorts based on both positions. The long-short hedging pressure portfolios are priced cross-sectionally and offer Sharpe ratios that systematically exceed those of long-only benchmarks. Further tests show that the hedging pressure risk premiums rise with the volatility of commodity futures markets and that the predictive power of hedging pressure over cross-sectional commodity futures returns is different from the previously documented forecasting power of past returns and the slope of the term structure.

An Anatomy of Commodity Futures Risk Premia

Author : Marta Szymanowska
Publisher :
ISBN 13 :
Total Pages : 73 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis An Anatomy of Commodity Futures Risk Premia by : Marta Szymanowska

Download or read book An Anatomy of Commodity Futures Risk Premia written by Marta Szymanowska and published by . This book was released on 2014 with total page 73 pages. Available in PDF, EPUB and Kindle. Book excerpt: We identify two types of risk premia in commodity futures returns: spot premia related to the risk in the underlying commodity, and term premia related to changes in the basis. Sorting on forecasting variables such as the futures basis, return momentum, volatility, inflation, hedging pressure, and liquidity, results in sizable spot premia in the high-minus-low sorted portfolios between 5% and 14% per annum and term premia between 1% and 3% per annum. We show that a single factor, the high-minus-low portfolio from basis sorts, explains the cross-section of spot premia. Two additional basis factors are needed to explain the term premia.

A Revised Hedging Model of the Risk Premium in the Commodities Futures Markets

Author : Stacie Ellen Beck
Publisher :
ISBN 13 :
Total Pages : 388 pages
Book Rating : 4.:/5 (244 download)

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Book Synopsis A Revised Hedging Model of the Risk Premium in the Commodities Futures Markets by : Stacie Ellen Beck

Download or read book A Revised Hedging Model of the Risk Premium in the Commodities Futures Markets written by Stacie Ellen Beck and published by . This book was released on 1987 with total page 388 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Time Varying Risk Premia in Futures Markets

Author : Graciela Kaminsky
Publisher :
ISBN 13 :
Total Pages : 32 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Time Varying Risk Premia in Futures Markets by : Graciela Kaminsky

Download or read book Time Varying Risk Premia in Futures Markets written by Graciela Kaminsky and published by . This book was released on 2006 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Trading and Hedging with Agricultural Futures and Options

Author : James B. Bittman
Publisher : McGraw-Hill Companies
ISBN 13 :
Total Pages : 394 pages
Book Rating : 4.E/5 ( download)

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Book Synopsis Trading and Hedging with Agricultural Futures and Options by : James B. Bittman

Download or read book Trading and Hedging with Agricultural Futures and Options written by James B. Bittman and published by McGraw-Hill Companies. This book was released on 2001 with total page 394 pages. Available in PDF, EPUB and Kindle. Book excerpt: After a brief review of option basics, this guide delves into the different trading strategies that can be used by processors, producers, and speculators. The book relies to a great extent on concrete examples, while de-emphasizing theory and mathematical models and numerous tried-and-tested techniques for trading agricultural options. Traders learn how to evaluate practical situations as well as how to manage positions held in the agricultural options market. Among the topics included are: how to build synthetic options; the differences between hedging and synthetic strategies; understanding price behaviour before expiration; volatility, the role of delta, gamma, theta, and vega on price movement; matching strategies with forecasts and the basics of argricultural options, including various spreads.

Domestic and Global Risk Factors and the Risk Premiums in Commodity and Financial Futures Markets

Author : Changhyun Yun
Publisher :
ISBN 13 :
Total Pages : 312 pages
Book Rating : 4.:/5 (299 download)

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Book Synopsis Domestic and Global Risk Factors and the Risk Premiums in Commodity and Financial Futures Markets by : Changhyun Yun

Download or read book Domestic and Global Risk Factors and the Risk Premiums in Commodity and Financial Futures Markets written by Changhyun Yun and published by . This book was released on 1993 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt:

The Fundamentals of Commodity Futures Returns

Author : Gary Gorton
Publisher :
ISBN 13 :
Total Pages : 45 pages
Book Rating : 4.:/5 (165 download)

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Book Synopsis The Fundamentals of Commodity Futures Returns by : Gary Gorton

Download or read book The Fundamentals of Commodity Futures Returns written by Gary Gorton and published by . This book was released on 2007 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

The Determinants of Liquidity and the Role of the Market-maker in Commodity Futures Markets

Author : Mark Leonard Waller
Publisher :
ISBN 13 :
Total Pages : 326 pages
Book Rating : 4.:/5 (197 download)

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Book Synopsis The Determinants of Liquidity and the Role of the Market-maker in Commodity Futures Markets by : Mark Leonard Waller

Download or read book The Determinants of Liquidity and the Role of the Market-maker in Commodity Futures Markets written by Mark Leonard Waller and published by . This book was released on 1988 with total page 326 pages. Available in PDF, EPUB and Kindle. Book excerpt:

The Commitments of Traders Bible

Author : Stephen Briese
Publisher : John Wiley & Sons
ISBN 13 : 0470178426
Total Pages : 325 pages
Book Rating : 4.4/5 (71 download)

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Book Synopsis The Commitments of Traders Bible by : Stephen Briese

Download or read book The Commitments of Traders Bible written by Stephen Briese and published by John Wiley & Sons. This book was released on 2008-04-04 with total page 325 pages. Available in PDF, EPUB and Kindle. Book excerpt: Regardless of your trading methods, and no matter what markets you’re involved in, there is a Commitments of Traders (COT) report that you should be reviewing every week. Nobody understands this better than Stephen Briese, an industry-leading expert on COT data. And now, with The Commitments of Traders Bible, Briese reveals how to use the predictive power of COT data—and accurately interpret it—in order to analyze market movements and achieve investment success.

The Fundamentals of Commodity Futures Returns

Author : Gary B. Gorton
Publisher :
ISBN 13 :
Total Pages : 63 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis The Fundamentals of Commodity Futures Returns by : Gary B. Gorton

Download or read book The Fundamentals of Commodity Futures Returns written by Gary B. Gorton and published by . This book was released on 2010 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 quot;hedging pressurequot; hypothesis that these positions are an important determinant of risk premiums.

Residual Risk, Trading Costs and Commodity Futures Risk Premia

Author : David A. Hirshleifer
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Residual Risk, Trading Costs and Commodity Futures Risk Premia by : David A. Hirshleifer

Download or read book Residual Risk, Trading Costs and Commodity Futures Risk Premia written by David A. Hirshleifer and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Trading costs, in the form either of explicit charges or of the costs of becoming informed, limit the participation of some classes of traders in commodity futures markets. When speculators face a fixed cost of participating in a futures market that is used by commodity producers to hedge their stochastic revenues, the futures risk premium deviates from the perfect markets prediction. The deviation rises in absolute value with the square root of the trading cost and with the standard deviation of residual returns, and it is unrelated to the covariance of the futures price with producers' nonmarketable wealths. The residual-risk premium depends not on the total magnitude of the risk that producers hedge (i.e., aggregate revenue variance), but on the variability of their revenue relative to its mean (i.e., the coefficient of variation). Hence, even a commodity that constitutes a minor fraction of aggregate consumption may have a large premium for residual risk if the revenue derived from it has a large coefficient of variation.

Agricultural Options

Author : Christopher A. Bobin
Publisher :
ISBN 13 :
Total Pages : 276 pages
Book Rating : 4.:/5 (89 download)

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Book Synopsis Agricultural Options by : Christopher A. Bobin

Download or read book Agricultural Options written by Christopher A. Bobin and published by . This book was released on 1990-05-21 with total page 276 pages. Available in PDF, EPUB and Kindle. Book excerpt: Agricultural Options Trading, Risk Management, and Hedging If you’re a trader, a hedger, a speculator, or even a novice at the ag market game, this is the book for you. Written by a leading options expert, Agricultural Options: Trading, Risk Management, and Hedging gives you the principles and proven strategies you need to profit in all the ag option markers— wheat, corn, soybeans, livestock, soft commodities, and more. You’ll learn: All the mathematical background and formulas you need to win in today’s ag market All about options in general and agricultural options in particular Risk management strategies, option pricing factors, and trading techniques Plus, the book contains detailed case studies of option trades that illustrate the best strategies and how—and why—they work. With Agricultural Options, you’re right on top of the game.