The role of financial investors in determining the commodity futures risk premium |
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Authors: | Mohammad Isleimeyyeh |
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Institution: | Paris Dauphine University, PSL Research University, Paris, France |
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Abstract: | I develop and test a model to study the interaction between the commodity and stock markets. This study attempts to clarify the debate about the effect of financialization on commodity markets. Theoretically, the futures risk premium is determined by hedging pressure, stock market returns, and the commodity–equity correlation. Empirically, the effect of the stock market on the energy market became significantly greater for the futures risk premium in the period following the 2008 crisis. Furthermore, hedging pressure is a strong explanatory variable for the futures risk premium in various circumstances. |
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Keywords: | diversification dynamic conditional correlation energy financialization futures risk premium hedging |
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