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Convenience yield risk

Author

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  • Prokopczuk, Marcel
  • Symeonidis, Lazaros
  • Wese Simen, Chardin
  • Wichmann, Robert

Abstract

We develop a framework to quantify the convenience yield risk (CYR) inherent to each commodity futures market. Implementing our approach, we document that our novel CYR measure is informative about future commodity returns. In panel regressions, the CYR predicts future returns with a positive sign. Economically, a strategy that opens long positions in commodity markets with a higher than median CYR signal and sells the remaining commodities yields an average return of 6.93% per year. The performance of the CYR strategy cannot be explained by exposure to existing commodity strategies or other variables that capture changes in the investment opportunity set.

Suggested Citation

  • Prokopczuk, Marcel & Symeonidis, Lazaros & Wese Simen, Chardin & Wichmann, Robert, 2023. "Convenience yield risk," Energy Economics, Elsevier, vol. 120(C).
    • Handle: RePEc:eee:eneeco:v:120:y:2023:i:c:s0140988323000348
    DOI: 10.1016/j.eneco.2023.106536
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    More about this item

    Keywords

    Commodity risk factors; Convenience yield; Futures curve; Return predictability;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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