Wisdom of Crowds and Commodity Pricing

Fan, John Hua; Binnewies, Sebastian; SILVA, Sanuri  De

doi:10.2139/ssrn.4104888

Cited by 1 publication

(2 citation statements)

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“…Next, we test whether additional factors weaken the performance of the geopolitical risk premium. Following Fan et al (2022) and Shang et al (2016), we choose two groups of factors that have been proven to have significant influences on the cross-section of commodity futures contract returns: the first group includes three commonly used pricing factors in the asset pricing literature of commodity futures market, while the second group consists of three factors proxy for macroeconomic fundamentals.…”

Section: Robustness Checksmentioning

confidence: 99%

“…For example, using national elections data as a proxy, Hou et al (2020) find that the impact of policy uncertainty on commodity prices and inventory in commodity‐producing and commodity‐demanding countries is the opposite. Fan et al (2022) extract commodity‐level sentiment from the Twittersphere and establish a long–short systematic strategy based on sentiment shifts.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

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The geopolitical risk premium in the commodity futures market

Cheng

Liao

Pan

2023

Journal of Futures Markets

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In this study, we investigate the geopolitical risk premium in the commodity futures market. By estimating the exposure of cross‐sectional commodity futures excess returns on a historical geopolitical risk index, we find that commodities with low‐risk betas generate 9.05% higher annual risk‐adjusted returns than those with high‐risk betas. The results indicate that low‐geopolitical‐risk‐related commodity futures contracts require extra compensation by risk‐averse investors due to hedging demand. We also explore the time‐varying characteristics of the geopolitical risk premium: It appears more pronounced during high‐geopolitical‐risk periods and before the year 2000. Finally, we exploit the subcategories of geopolitical risk and find that geopolitical threats better explain the variation of the geopolitical risk premium than do geopolitical acts, making it a main source of the geopolitical risk premium.

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Section: Robustness Checksmentioning

confidence: 99%

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%