The Skewness of Commodity Futures Returns

Fernandez Perez, A
Frijns, B
Fuertes, AM
Miffre, J
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Journal Article
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This article studies the relation between the skewness of commodity futures returns and expected returns. A trading strategy that takes long positions in commodity futures with the most negative skew and shorts those with the most positive skew generates significant excess returns that remain after controlling for exposure to well-known risk factors. A tradeable skewness factor explains the cross-section of commodity futures returns beyond exposures to standard risk premia. The impact that skewness has on future returns is explained by investors’ preferences for skewness under cumulative prospect theory and selective hedging practices.

Skewness; Commodities; Futures pricing; Selective hedging
Journal of Banking & Finance, doi: 10.1016/j.jbankfin.2017.06.015
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Copyright © 2017 Elsevier Ltd. All rights reserved. This is the author’s version of a work that was accepted for publication in (see Citation). Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. The definitive version was published in (see Citation). The original publication is available at (see Publisher's Version).