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Are there common factors in individual commodity futures returns?
Institution:1. Department of Banking and Financial Management, University of Piraeus, Greece;2. Manchester Business School, University of Manchester, UK;3. School of Economics and Finance, Queen Mary, University of London, UK;1. Belk College of Business, University of North Carolina at Charlotte, 9201 University City Blvd, Charlotte, NC 28223-0001, United States;2. School of Economics and Management, Wuhan University, Wuhan 430072, PR China;3. The Business School, University of Colorado Denver, Denver, CO 80217, United States;4. School of Finance, Nankai University, Tianjin 300071, PR China;1. School of Finance, Central University of Finance and Economics, China;2. School of Economics and Management, Beihang University, China;1. ICMA Centre, Henley Business School, University of Reading, Whiteknights, Reading RG6 6BA, UK;2. Department of Finance, Auckland University of Technology, Private Bag 92006, 1142 Auckland, New Zealand;3. EDHEC Business School, 392 Promenade des Anglais, Nice, France
Abstract:We explore whether there are common factors in the cross-section of individual commodity futures returns. We test various asset pricing models which have been employed for the equities market as well as models motivated by commodity pricing theories. The use of these families of models allows us also to test whether the commodities and equities market are integrated. In addition, we employ principal components factor models which do not require à priori specification of factors. We find that none of the models is successful. Our results imply that commodity markets are segmented from the equities market and they are considerably heterogeneous per se.
Keywords:Common factors  Commodity-specific factors  Hedging pressure  Inventories  Market segmentation  Principal components analysis
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