Details
| Original language | English |
|---|---|
| Article number | 106536 |
| Journal | Energy Economics |
| Volume | 120 |
| Early online date | 13 Feb 2023 |
| Publication status | Published - Apr 2023 |
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.
Keywords
- Commodity risk factors, Convenience yield, Futures curve, Return predictability
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
- Energy(all)
- General Energy
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In: Energy Economics, Vol. 120, 106536, 04.2023.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Convenience yield risk
AU - Prokopczuk, Marcel
AU - Symeonidis, Lazaros
AU - Wese Simen, Chardin
AU - Wichmann, Robert
PY - 2023/4
Y1 - 2023/4
N2 - 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.
AB - 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.
KW - Commodity risk factors
KW - Convenience yield
KW - Futures curve
KW - Return predictability
UR - http://www.scopus.com/inward/record.url?scp=85150478023&partnerID=8YFLogxK
U2 - 10.1016/j.eneco.2023.106536
DO - 10.1016/j.eneco.2023.106536
M3 - Article
AN - SCOPUS:85150478023
VL - 120
JO - Energy Economics
JF - Energy Economics
SN - 0140-9883
M1 - 106536
ER -