New related paper to #21 – Momentum Effect in Commodities and #22 – Term Structure Effect in Commodities
#21 – Momentum Effect in Commodities
#22 – Term Structure Effect in Commodities
Authors: Bakshi, Bakshi, Rossi
Title: Understanding the Sources of Risk Underlying the Cross-Section of Commodity Returns
Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2589057
Abstract:
We show that a model featuring an average commodity factor, a carry factor, and a momentum factor is capable of describing the cross-sectional variation of commodity returns. More parsimonious one- and two-factor models that feature only the average and/or carry factors are rejected. To provide an economic interpretation, we show that innovations in equity volatility can price portfolios formed on carry with a negative risk premium, while innovations in our measure of speculative activity can price portfolios formed on momentum with a positive risk premium. Furthermore, we characterize the relation of the factors with the investment opportunity set.
Notable quotations from the academic research paper:
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