Dynamic speculation and hedging in commodity futures markets with a stochastic convenience yield

Mellios, Constantin; Six, Pierre; Lai, Anh Ngoc

doi:10.1016/j.ejor.2015.10.045

Cited by 16 publications

(6 citation statements)

References 51 publications

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“…Behavioral finance's psychology and theories identified deviations from standard finance. The laypeople have no information about irrational behavior (Mellios et al, 2016). This study analyzes the serial mediation effect, namely, optimism bias and risk perception between emotional intelligence and investment decisions in the commodity market.…”

Section: Discussionmentioning

confidence: 99%

Mediating Role of Optimism Bias and Risk Perception Between Emotional Intelligence and Decision-Making: A Serial Mediation Model

et al. 2022

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The commodity market plays a vital role in boosting the economy. Investors make decisions based on market knowledge and ignore cognitive biases. These cognitive biases or judgment errors have a significant effect on investment decisions. Therefore, this study aimed to investigate the effect of emotional intelligence on decision-making. In addition, optimism bias and risk perception are the intervening variables between emotional intelligence and decision-making. So, this study contributes to the body of knowledge by examining the mediating role of optimism bias and risk perception. The data were collected from the respondents of the commodity market and the 370 questionnaires were distributed among the investors, of which 337 respondents gave their feedback. The convenience base sampling technique is used due to the easy access of respondents, time factor, and cost factor. Data entered into the SPSS Statistics Version 26 and PROCESS macro model 6 were used for serial mediation. AMOS was used for the validity and model-fit analysis. The results of this study aligned with the literature that there is a significant effect of emotional intelligence on decision-making. It also observed that optimism bias has a positive effect on decision-making. The finding of this study will be helpful for the brokers, the government, and especially the investors. This study also proposed that future studies on the stock exchange and real estate market comparative analysis can be conducted.

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Section: Discussionmentioning

confidence: 99%

Mediating Role of Optimism Bias and Risk Perception Between Emotional Intelligence and Decision-Making: A Serial Mediation Model

et al. 2022

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“…Similar to Mellios et al. ( 2016 ), we consider three types of assets in which to invest, in addition to the cash account. These assets are a spot commodity, a prepaid forward and a bond.…”

Section: Mathematical Settingsmentioning

confidence: 99%

“…Similarly to the setting of Mellios et al. ( 2016 ), we invested in a spot commodity ( ) and a prepaid forward with a maturity of one quarter ( ). The parameters are estimated in Sect.…”

Section: Empirical Analysismentioning

confidence: 99%

“…Additional state variables, for example stochastic interest rate (IR) (see Kraft ( xxx ); Flor and Larsen ( 2013 )) and stochastic convenience yield (CY) (Mellios et al. ( 2016 )), have been included in the analysis with the corresponding need for completeness in the portfolio (see Liu et al. ( 2005 )).…”

Section: Introductionmentioning

confidence: 99%

“…In the absence of ambiguity, the leading analysis was provided by Mellios et al. ( 2016 ), who established the portfolio optimization problem using a spot commodity, a future contract and a bond; the commodity price model is based on Model III of Schwartz ( 1997 ). This is a complete market model, where the market price of risk is assumed to be a function of CY and spot prices.…”

Section: Introductionmentioning

confidence: 99%

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Model uncertainty on commodity portfolios, the role of convenience yield

Chen

Escobar‐Anel

2021

Ann Finance

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This paper investigates the effect of model uncertainty on the performance of commodity-based portfolios. We consider a constant relative risk aversion (CRRA) utility maximizer investor in a complete market, with independent ambiguity-aversion levels for the three factors explaining the term structure of future prices, namely, spot prices, convenience yield (CY) and interest rates (IRs), as proposed in the seminal work of Schwartz (J Finance 52(3): 923–973, 1997). This generic investor is interested in the speculative component of the investment rather than possessing/consuming the physical commodity. We obtain closed-form solutions for optimal investments, optimal perturbations (alternative model) and value functions in line with the robust portfolio setting of Maenhout (Rev Financial Stud 17(4): 951–983, 2004). Our main focus is on the effect of convenience yield’s uncertainty on the optimal analysis. We estimate the model by applying a combination of maximum likelihood estimation (MLE) and Kalman Filter (KF) techniques, to two commodities: West Texas Intermediate (WTI) and copper future prices. The analysis demonstrates that uncertainty on the CY factor could be the largest contributor to the under-performance of a commodities portfolio, with wealth equivalent losses (WELs) in the ranges of 33% to 88% (WTI), and 7% to 31% (copper). Moreover, small variations, of up 25%, on CY’s covariance parameters could lead to a WEL of up to 40% (WTI, lesser volatility of CY).

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Long‐short speculator sentiment in agricultural commodity markets

Borgards

Czudaj

2022

Int. J Fin Econ

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This paper tests the hypothesis that long-short speculators are able to generate short-term investment returns based on their sentiment for twelve agricultural commodity futures. For this purpose, we dynamically model the equidirectional trading of long and short commodity futures of long-short speculators as a proxy for their market sentiment. We find evidence that the sentiment period returns are considerably positive and differ significantly from neutral sentiment periods for all commodities which underlines the sentiment's relevance. In line with the empirical literature, we can reject the argument of price manipulation as the price continues to develop into the direction of the sentiment period although long-short speculators trade non-directionally in the following. We rather indicate the existence of a short-term time-series momentum effect, which can be robustly identified without the requirement to define an external model parameter. From the superior sentiment-based momentum returns, we conclude that long-short speculators have valuable, exclusive information, which cannot be replicated by observing their trading activity with a time lag of eight trading days. We also find that a sentiment-based momentum strategy generates significantly higher returns than the long-short speculators have realized in the fifteen-year sample period which we attribute to the complexity of the long-short speculators' investment strategies.

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Dynamic speculation and hedging in commodity futures markets with a stochastic convenience yield

Cited by 16 publications

References 51 publications

Mediating Role of Optimism Bias and Risk Perception Between Emotional Intelligence and Decision-Making: A Serial Mediation Model

Mediating Role of Optimism Bias and Risk Perception Between Emotional Intelligence and Decision-Making: A Serial Mediation Model

Model uncertainty on commodity portfolios, the role of convenience yield

Long‐short speculator sentiment in agricultural commodity markets

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