Journal
JOURNAL OF FINANCE
Volume 74, Issue 1, Pages 239-279Publisher
WILEY
DOI: 10.1111/jofi.12738
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Funding
- Fundacao para a Ciencia e a Tecnologia [UID/ECO/00124/2013, 22209]
- POR Lisboa [22209, LISBOA-01-0145-FEDER-007722]
- POR Norte (Social Sciences DataLab) [22209]
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We introduce a return predictor related to the slope and curvature of the futures term structure: basis-momentum. Basis-momentum strongly outperforms benchmark characteristics in predicting commodity spot and term premiums in both the time series and the cross section. Exposure to basis-momentum is priced among commodity-sorted portfolios and individual commodities. We argue that basis-momentum captures imbalances in the supply and demand of futures contracts that materialize when the market-clearing ability of speculators and intermediaries is impaired, and that it represents compensation for priced risk. Our findings are inconsistent with alternative explanations based on storage, inventory, and hedging pressure.
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