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Production Risk and the Futures Price Risk Premium?

Author

Listed:
  • Asche, Frank

    (UiS)

  • Misund, Bard

    (UiS)

  • Oglend, Atle

    (UiS)

Abstract

Typically, the risk premium in futures prices is examined by regressing the ex post risk premium on the ex ante spot-futures price basis. However, recent studies suggest that industry specific production factors as well as the basis can influence the relationship between spot and futures prices. The Atlantic salmon market is a market where risk associated with special production characteristics may affect the spot-forward relationship. Futures markets have recently been introduced for aquaculture products, and an understanding of the specific risk factors is important if these markets are to succeed. Using spot and futures prices as well as a set of industry specific variables, we seek to explain the variation in the risk premium in salmon futures by the variation in the basis. We find that shocks in key production variables help explain the variation in the risk premium along the forward curve.

Suggested Citation

  • Asche, Frank & Misund, Bard & Oglend, Atle, 2015. "Production Risk and the Futures Price Risk Premium?," UiS Working Papers in Economics and Finance 2015/13, University of Stavanger.
    • Handle: RePEc:hhs:stavef:2015_013
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    References listed on IDEAS

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    Cited by:

    1. Misund, Bård, 2015. "Financial Ratios and Prediction on Corporate Bankruptcy in the Atlantic Salmon Industry," UiS Working Papers in Economics and Finance 2015/9, University of Stavanger.

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    More about this item

    Keywords

    Atlantic salmon markets; Forward prices; Risk premium;
    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
    • Q22 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Fishery

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