The Fundamentals of Commodity Futures Returns

Gorton, Gary; Hayashi, Fumio; Rouwenhorst, K. Geert

doi:10.1093/rof/rfs019

Cited by 598 publications

(430 citation statements)

References 49 publications

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“…An interpretation for the strong significance in animal commodities could be the high storage costs and perishability that lead to low inventory levels relative to demand. In general, our results support the evidence of Gorton et al (2007).…”

Section: Empirical Evidencesupporting

confidence: 90%

“…For instance, some commodities such as the agriculturals are periodically produced and therefore variation in inventory levels throughout the year affects the sensitivity of their spot and futures prices to demand shocks. Gorton et al (2007) mention that high storage costs provide incentives to economise on inventories and also limit the variation in available supplies. This can partly explain the observed positive inventory-volatility relationship.…”

Section: Inventory and Price Volatilitymentioning

confidence: 99%

“…Gorton et al (2007) employ physical inventory data to document a negative non-linear relationship between inventory and the futures basis for a large cross-section of commodities. They do not examine the link between inventory and volatility in detail as we do.…”

Section: Introductionmentioning

confidence: 99%

“…As mentioned in Gorton et al (2007), there exist some problems when dealing with inventory data. These are basically associated with the definition of the appropriate measure of inventory (e.g.…”

Section: Introductionmentioning

confidence: 99%

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Futures Basis, Inventory and Commodity Price Volatility: An Empirical Analysis

et al. 2012

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We employ a large dataset of physical inventory data on 21 different commodities for the period 1993-2011 to empirically analyze the behaviour of commodity prices and their volatility as predicted by the theory of storage. We examine two main issues. First, we explore the relationship between inventory and the shape of the forward curve. Low (high) inventory is associated with forward curves in backwardation (contango), as the theory of storage predicts. Second, we show that price volatility is a decreasing function of inventory for the majority of commodities in our sample. This effect is more pronounced in backwardated markets. Our findings are robust with respect to alternative inventory measures and over the recent commodity price boom period.JEL classification: C22, C58, G00, G13

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Section: Empirical Evidencesupporting

confidence: 90%

Section: Inventory and Price Volatilitymentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Futures Basis, Inventory and Commodity Price Volatility: An Empirical Analysis

et al. 2012

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“…For example, Singleton (2013) shows that the NYMEX WTI crude oil price peaked (at about 140 USD per barrel) around August 2008. Other studies providing detailed analyses with similar tendencies in commodity trading activities and price dynamics include Casassus and Collin-Dufresne (2005), Gorton and Rouwenhorst (2006), Hong and Yogo (2009), Acharya, Lochstoer, and Ramadorai (2013), and Gorton, Hayashi, and Rouwenhorst (2013).…”

Section: Introductionmentioning

confidence: 97%

Commodities, Financialization, and Heterogeneous Agents

Branger¹,

Grüning

Schlag

2016

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may www.econstor.euElectronic copy available at: http://ssrn.com/abstract=2759314Electronic copy available at: http://ssrn.com/abstract=2759314 Non-Technical SummarySince the seminal work of Keynes (1930) economists and researchers in finance have studied the theory and empirics of commodity futures markets and their fundamentals extensively. Over the past decade these markets have been the focus of an intense public debate and in academia. The reason is that commodity spot and futures prices, especially those for various food commodities as well as oil and gas, had increased to all-time highs. This pronounced price increase had occurred together with an equally sharp increase in long positions in these contracts held by financial speculators, which often trade in index products written on a basket of commodities. The volume of index-linked commodity investing went up dramatically from the beginning of 2006 until the end of 2007. At around the same time futures and spot prices had risen to all-time highs.Given this coincidence of large index-linked and financially motivated commodity positions on the one hand and increasing commodity prices on the other, the activities by financial speculators on commodity markets were perceived as harmful from a welfare perspective, especially in the context of food commodities. The poorer parts of the population, in particular in emerging countries, have to spend a large share of their income on these basic commodities. Consequently, it was suggested that futures markets should be regulated tightly via, for example, position limits.Nevertheless, despite the seemingly clear evidence presented above, the debate about a potential causality going from commodity investing to excessive price increases is still ongoing, with evidence both for and against the hypothesis. One reason for this difference of opinion is probably that the empirical analyses are still plagued by a number of problems. First, the financialization phenomenon in the sense of strongly increasing position sizes held by financial investors can only be observed from 2004 onwards, that is, over a relatively short sample. Second, the data do not usually exhibit the quality needed to study potential causal effects reliably. For example, it is often hard to distinguish financial speculators from other types of investors and to obtain their exact trading positions, since one can only obtain aggregate net positions.Overall, as t...

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Returns to Investing in Commodity Futures: Separating the Wheat from the Chaff

Irwin¹,

Sanders²,

Smith³

et al. 2020

Applied Eco Perspectives Pol

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Commodity futures investment grew rapidly after its popularity exploded in the mid-2000s. However, real-time performance has been disappointing. Our analysis shows that the disappointing commodity returns were not driven mechanically by contango or negative "roll yields." We show that the expected return to individual commodity futures is near zero before expenses, which implies net losses (before interest earnings) will be equal to order execution and operating costs estimated at 3%-4% per year. Finally, it is likely that rapid increases in commodity prices during 2004-2008 skewed investor return expectations upward much like it did in the early 1970s.

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The Fundamentals of Commodity Futures Returns

Cited by 598 publications

References 49 publications

Futures Basis, Inventory and Commodity Price Volatility: An Empirical Analysis

Futures Basis, Inventory and Commodity Price Volatility: An Empirical Analysis

Commodities, Financialization, and Heterogeneous Agents

Returns to Investing in Commodity Futures: Separating the Wheat from the Chaff

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