Is news related to GDP growth a risk factor for commodity futures returns?

Daniel Tsvetanov, Jerry Coakley, Neil Kellard

Research output: Contribution to journalArticle

3 Citations (Scopus)
29 Downloads (Pure)

Abstract

Expectations about future economic activity should theoretically affect the demand for inventory holdings and therefore commodity spot and futures prices. Consistent with these predictions, we find that news related to future GDP growth is a significant factor that is priced in the cross section of commodity futures sorted by percentage net basis. The latter is highly correlated with inventories. In particular, it establishes that commodity futures with high inventory levels provide a hedge against risk associated with future GDP growth so that investors are willing to accept lower return. By contrast, those commodity futures with low inventory levels are inversely related to the GDP-related factor so that investors require a higher return. Such results suggest that commodity futures excess returns are a compensation for risk.
Original languageEnglish
Pages (from-to)1887-1899
Number of pages13
JournalQuantitative Finance
Volume16
Issue number12
Early online date14 Sep 2016
DOIs
Publication statusPublished - 2016

Keywords

  • Commodity futures
  • Percentage net basis
  • Asset pricing
  • News
  • Gross domestic product

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