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Volatility Forecasting and Time-varying Variance Risk Premiums in Grains Commodity Markets

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  • Athanasios Triantafyllou
  • George Dotsis
  • Alexandros H. Sarris

Abstract

type="main" xml:id="jage12101-abs-0001"> In this paper we examine empirically the predictive power of model-free option-implied variance and skewness in wheat, maize and soybeans derivative markets. We find that option-implied risk-neutral variance outperforms historical variance as a predictor of future realised variance for these three commodities. In addition, we find that risk-neutral option-implied skewness significantly improves variance forecasting when added in the information variable set. Variance risk premia add significant predictive power when included as an additional factor for predicting future commodity returns.

Suggested Citation

  • Athanasios Triantafyllou & George Dotsis & Alexandros H. Sarris, 2015. "Volatility Forecasting and Time-varying Variance Risk Premiums in Grains Commodity Markets," Journal of Agricultural Economics, Wiley Blackwell, vol. 66(2), pages 329-357, June.
    • Handle: RePEc:bla:jageco:v:66:y:2015:i:2:p:329-357
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    File URL: http://hdl.handle.net/10.1111/jage.2015.66.issue-2
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    Citations

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    Cited by:

    1. Cremers, Martijn & Fleckenstein, Matthias & Gandhi, Priyank, 2021. "Treasury yield implied volatility and real activity," Journal of Financial Economics, Elsevier, vol. 140(2), pages 412-435.
    2. Mei, Dexiang & Xie, Yutang, 2022. "U.S. grain commodity futures price volatility: Does trade policy uncertainty matter?," Finance Research Letters, Elsevier, vol. 48(C).
    3. Degiannakis, Stavros & Filis, George & Klein, Tony & Walther, Thomas, 2022. "Forecasting realized volatility of agricultural commodities," International Journal of Forecasting, Elsevier, vol. 38(1), pages 74-96.
    4. Ana‐Maria Fuertes & Zhenya Liu & Weiqing Tang, 2022. "Risk‐neutral skewness and commodity futures pricing," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(4), pages 751-785, April.
    5. Marinela Adriana Finta & José Renato Haas Ornelas, 2018. "Commodity Return Predictability: evidence from implied variance, skewness and their risk premia and their risk premia," Working Papers Series 479, Central Bank of Brazil, Research Department.
    6. Adrian Fernandez‐Perez & Bart Frijns & Ilnara Gafiatullina & Alireza Tourani‐Rad, 2019. "Properties and the predictive power of implied volatility in the New Zealand dairy market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(5), pages 612-631, May.
    7. Bermpei, Theodora & Ferrara, Laurent & Karadimitropoulou, Aikaterini & Triantafyllou, Athanasios, 2024. "Commodity currencies revisited: The role of global commodity price uncertainty," Journal of International Money and Finance, Elsevier, vol. 145(C).
    8. Finta, Marinela Adriana & Ornelas, José Renato Haas, 2022. "Commodity return predictability: Evidence from implied variance, skewness, and their risk premia☆☆," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    9. Laurent Ferrara & Aikaterina Karadimitropoulou & Athanasios Triantafyllou & Theodora Bermpei, 2022. "Commodity currencies revisited: The role of global commodity price uncertainty," EconomiX Working Papers 2022-24, University of Paris Nanterre, EconomiX.
    10. Pal, Debdatta & Mitra, Subrata K., 2019. "Correlation dynamics of crude oil with agricultural commodities: A comparison between energy and food crops," Economic Modelling, Elsevier, vol. 82(C), pages 453-466.

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