No abstract

determined that these risk premiums did not exist. She argued that the Keynesian risk premiums may be measured by the systematic risk of futures markets. Since the beta coefficients she estimated were not significantly different from zero, she concluded that futures returns in the sample period did not conform to the Keynesian model.Recently, Carter, Rausser, and Schmitz (1983; hereafter CRS) criticized this earlier work by Dusak for using a misspecified model to determine the existence of risk premiums in commodity futures contracts. CRS suggest a more appropriate model and provide empirical results which differ from Dusak's, i. e., their beta coefficients are significant. However, Marcus (1984) has argued that CRS appear to have misspecified the model because of a substantial overstatement of the value of commodity weighting in the market portfolio. While Marcus argues persuasively, 'The determination of whether risk premiums exist or not in commodity futures contracts is central to the price discovery mechanism. Assuming an efficient futures market, Black (1976) has argued a major benefit of futures markets is that participants ran make production, storage, and process decisions by examining the patterns of future prices.

Complete diversification is the rational investment strategy for a risk averse individual in a homogeneous securities market who considers only the first two moments of return. Observed behavior of market participants, however, demonstrates that the majority of individual investors hold imperfectly diversified portfolios. The purpose of the present study is to examine one potential cause for this behavior which does not rely on imperfection in the capital market. Specifically, we show that given the existence of, and investor preference for, positive skewness, a rational investor may hold an optimal limited number of homogeneous risk assets.

No abstract

No abstract