2018
DOI: 10.1016/j.jbankfin.2017.06.015
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Abstract: 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 futu… Show more

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Cited by 98 publications
(87 citation statements)
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References 42 publications
(24 reference statements)
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“…Surprisingly, however, alternative risk premia strategies such as OI, liquidity, FX, inflation and skewness do not report statistically significant profits in our US sample. This is in sharp contrast with Szymanowska et al () and Fernandez‐Perez et al (), who report seemingly robust profits using a longer time‐series and a larger cross‐section of commodities. This clearly suggests that alternative premia are sensitive to sample‐ and time‐specifications, but it also implies that the recent “financialization” has had an enduring impact on commodity markets in the United States.…”
Section: Resultscontrasting
confidence: 74%
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“…Surprisingly, however, alternative risk premia strategies such as OI, liquidity, FX, inflation and skewness do not report statistically significant profits in our US sample. This is in sharp contrast with Szymanowska et al () and Fernandez‐Perez et al (), who report seemingly robust profits using a longer time‐series and a larger cross‐section of commodities. This clearly suggests that alternative premia are sensitive to sample‐ and time‐specifications, but it also implies that the recent “financialization” has had an enduring impact on commodity markets in the United States.…”
Section: Resultscontrasting
confidence: 74%
“…The skewness strategy is motivated by investors’ preferences for positive skewness under the cumulative prospect theory and the selective hedging practice. Fernandez‐Perez et al () document a sizeable premium in the United States by taking long (short) positions in the most negatively (positively) skewed commodities. On the contrary, we find that commodities with higher skewness outperform those with lower skewness, suggesting that position limits cause the skewness preferences to reverse.…”
Section: Resultsmentioning
confidence: 99%
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“…In Model 1, METRIC is WorkingT which captures speculative activity in options and futures markets. The independent variables include: ratios of options and futures trading volume ( OptVol / FutVol ), options and futures open interest ( OptOI / FutOI ), and options and futures quoted bid–ask spreads ( OptQSpr / FutQSpr ), as well as skewness of futures returns ( Skew ) following Fernandez‐Perez, Frijns, Fuertes, and Miffre (), and 20‐day intraday return volatility ( Vola ) . A positive (negative) coefficient on the METRIC variable would indicate that increases (decreases) in excess speculation are associated with increases (decreases) in the options market's share of price discovery.…”
Section: Resultsmentioning
confidence: 99%