ASYMMETRIC VOLATILITY OF NET CONVENIENCE YIELD: EVIDENCE FROM INDIAN COMMODITY FUTURES MARKETS

In the early 2000s, financial investors began pouring billions of dollars into the commodity futures markets seeking the unique investment benefits of this distinct asset class. This “financialization” process has called into question the fundamental risk and return properties of commodity futures as evidence has emerged favoring the idea that the massive increase in investor flows caused a rise in futures prices, volatility, and intra- and intermarket return correlations. However, a contrarian line of research contends that the effects of the new “speculative” capital on the futures markets are unsubstantiated and the increased participation of financial investors poses little consequence to the economics of the marketplace. This latter line of literature maintains that the investment benefits of commodity futures have not been diminished and that fundamental factors and business cycle variations can explain the observed changes in commodity price behavior.

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An Evaluation of Pairs Trading in Commodity Futures Markets

2020 IEEE International Conference on Big Data (Big Data) ◽

10.1109/bigdata50022.2020.9377766 ◽

2020 ◽

Author(s):

Li Shen ◽

Kun Shen ◽

Chao Yi ◽

Yixin Chen

Keyword(s):

Futures Markets ◽

Commodity Futures ◽

Pairs Trading ◽

Commodity Futures Markets

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Anomalies in Commodity Futures Markets

Quarterly Journal of Finance ◽

10.1142/s2010139221500178 ◽

2021 ◽

Author(s):

Fabian Hollstein ◽

Marcel Prokopczuk ◽

Björn Tharann

Keyword(s):

Factor Structure ◽

Futures Markets ◽

Commodity Markets ◽

Commodity Futures ◽

Idiosyncratic Volatility ◽

Large Set ◽

Jump Risk ◽

Commodity Futures Markets

In recent years, commodity markets have become increasingly popular among financial investors. While previous studies document a factor structure, not much is known about how prominent anomalies are priced in commodity futures markets. We examine a large set of such anomaly variables. We identify sizable premia for jump risk, momentum, skewness, and volatility-of-volatility. Other prominent variables, such as downside beta, idiosyncratic volatility, and MAX, are not priced in commodity futures markets. Commodity investors should rebalance their portfolios regularly. Returns for annual holding periods are substantially weaker than for monthly rebalancing.

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