Commodities and the Market Price of Risk.
Title:
Commodities and the Market Price of Risk.
Author:
Roache, Shaun K.
ISBN:
9781451988291
Personal Author:
Physical Description:
1 online resource (25 pages)
Series:
IMF Working Papers
Contents:
Contents -- I. Introduction -- II. Merton's ICAPM Risk-pricing Model -- A. Deriving the risk-pricing equation -- B. Identifying state variables -- III. Brief Review of the Literature -- IV. Data -- V. Estimating the Quantities and Prices of Risk -- A. The macro risk exposure of commodities -- B. Market prices for macro risk -- VI. Results -- A. Real interest rate risk is priced -- B. The time-varying cost of interest rate insurance -- C. Evidence for a commodity-specific risk premium -- D. Model fit -- VII. Conclusion -- References -- Appendix.
Abstract:
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.
Local Note:
Electronic reproduction. Ann Arbor, Michigan : ProQuest Ebook Central, 2017. Available via World Wide Web. Access may be limited to ProQuest Ebook Central affiliated libraries.
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Electronic Access:
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