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Risk premia in Chinese commodity markets

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  • He, Chaohua
  • Jiang, Cheng
  • Molyboga, Marat

Abstract

This paper investigates risk premia in Chinese commodity markets by decomposing the returns of commodity futures into spot and term premia following Szymanowska et al. (2014). We find that a three-factor model that includes an equally-weighted market factor, carry and time-series momentum explains spot premia. The term premium, which represents a deviation from the expectation hypothesis, is weak. By contrast, the premium in the U.S. commodity market is significant, evidence by an average t-statistic of 4.32. This premium is explained by two investable factors that are derived using calendar spreads. We further demonstrate that the term premia are not driven by liquidity and are negatively related to basis, likely due to mean-reversion in basis.

Suggested Citation

  • He, Chaohua & Jiang, Cheng & Molyboga, Marat, 2019. "Risk premia in Chinese commodity markets," Journal of Commodity Markets, Elsevier, vol. 15(C), pages 1-1.
    • Handle: RePEc:eee:jocoma:v:15:y:2019:i:c:5
    DOI: 10.1016/j.jcomm.2018.09.003
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    References listed on IDEAS

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    Cited by:

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    3. Meng Han, 2023. "Commodity momentum and reversal: Do they exist, and if so, why?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(9), pages 1204-1237, September.
    4. Qi Xu & Ying Wang, 2021. "Managing volatility in commodity momentum," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(5), pages 758-782, May.
    5. Bannigidadmath, Deepa & Narayan, Paresh Kumar, 2022. "Economic importance of correlations for energy and other commodities," Energy Economics, Elsevier, vol. 107(C).
    6. John Hua Fan & Tingxi Zhang, 2020. "The untold story of commodity futures in China," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(4), pages 671-706, April.
    7. Konstantinos N. Baltas & Robert Mann & Nicholaos C. Baltas, 2024. "The COVID-19 Pandemic and Unsustainable PPE Materials: A Correlation and Causality Analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(6), pages 1651-1671, June.

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