Systematic risk, hedging pressure, and risk premiums in futures markets

I examine the uniformity of risk pricing in futures and assetmarkets. Tests against a general alternative do not reflectcomplete integration of futures and asset markets. As predicted,estimates of the 'zero-beta' rate for futures are close to zero,and premiums for systematic risk do not differ significantlyacross assets and futures. There is, however, evidence consistentwith a specific alternative model presented by Hirshleifer (1988).Returns in foreign currency and agricultural futures vary withthe net holdings of hedgers, after controlling for systematicrisk. These results imply a degree of market segmentation andsupport hedging pressure as a determinant of futures premiums.