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Who Wins and Who Loses? Trader Returns and Risk Premiums in Agricultural Futures Markets

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  • Nicole M. Moran
  • Scott H. Irwin
  • Philip Garcia

Abstract

The rise of commodity index traders (CITs) in the early 2000s provides a natural experiment to identify whether passive holding of long agricultural futures positions earns a positive risk premium. We use nearly a decade of daily nonpublic position data for all large traders to compute trading profits in twelve agricultural futures markets. Despite increasing price trends in a majority of markets, CITs were the biggest losers during the sample period, experiencing losses in nine out of twelve markets and an aggregate loss of $6.9 billion. This is just the opposite of the prediction of the theory of normal backwardation.

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  • Nicole M. Moran & Scott H. Irwin & Philip Garcia, 2020. "Who Wins and Who Loses? Trader Returns and Risk Premiums in Agricultural Futures Markets," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(4), pages 611-652, December.
    • Handle: RePEc:wly:apecpp:v:42:y:2020:i:4:p:611-652
    DOI: 10.1002/aepp.13048
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    Cited by:

    1. Scott H. Irwin & Dwight R. Sanders & Aaron Smith & Scott Main, 2020. "Returns to Investing in Commodity Futures: Separating the Wheat from the Chaff," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(4), pages 583-610, December.
    2. Ziran Li & Dermot J. Hayes, 2022. "The hedging pressure hypothesis and the risk premium in the soybean reverse crush spread," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(3), pages 428-445, March.
    3. Quanbiao Shang & Teresa Serra & Philip Garcia, 2023. "Ride the trend: Is there spread momentum profit in the US commodity markets?," Journal of Agricultural Economics, Wiley Blackwell, vol. 74(1), pages 24-47, February.

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