Commodities and the Market Price of Risk

Commodities are back following a stellar run of price performance, attracting financial investor attention. What are the fundamental reasons to hold commodities? One reason is the exposure offered to underlying risk factors. In this paper, I. assess.the macro risk exposure offered by commodity futur...

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Main Author: Roache, Shaun K.
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2008, 2008
Series:IMF Working Papers; Working Paper
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Summary:Commodities are back following a stellar run of price performance, attracting financial investor attention. What are the fundamental reasons to hold commodities? One reason is the exposure offered to underlying risk factors. In this paper, I. assess.the macro risk exposure offered by commodity futures and test whether these risks are priced, using Merton's (1973) intertemporal capital asset pricing model for a sample of commodity prices covering the period January 1973 - February 2008. I find that commodity futures offer a hedge against lower interest rates and that investors are willing to accept lower expected returns for this position. Although some commodities are also a hedge against U.S. dollar depreciation, this risk is not priced
Physical Description:23 p.
ISBN:1451870795
9781451870794