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The skewness of commodity futures returns

Author

Listed:
  • Adrian Fernandez-Perez

    (AUT - Auckland University of Technology)

  • Bart Frijns

    (AUT - Auckland University of Technology)

  • Ana-Maria Fuertes

    (Sir John Cass Business School)

  • Joelle Miffre

    (Audencia Business School)

Abstract

This article studies the relation between the skewness of commodity futures returns and expected returns. A trading strategy that takes long positions in commodity futures with the most negative skew and shorts those with the most positive skew generates significant excess returns that remain after controlling for exposure to well-known risk factors. A tradeable skewness factor explains the cross-section of commodity futures returns beyond exposures to standard risk premia. The impact that skewness has on future returns is explained by investors' preferences for skewness under cumulative prospect theory and selective hedging practices.

Suggested Citation

  • Adrian Fernandez-Perez & Bart Frijns & Ana-Maria Fuertes & Joelle Miffre, 2018. "The skewness of commodity futures returns," Post-Print hal-01678744, HAL.
    • Handle: RePEc:hal:journl:hal-01678744
    DOI: 10.1016/j.jbankfin.2017.06.015
    Note: View the original document on HAL open archive server: https://audencia.hal.science/hal-01678744
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    More about this item

    Keywords

    Selective hedging; Commodities; Futures pricing; Skewness;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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