✦ LIBER ✦

Commodity futures risk premium and unstable systematic risk

✍ Scribed by Jacky C. So

Publisher: John Wiley and Sons
Year: 1987
Tongue: English
Weight: 838 KB
Volume: 7
Category: Article
ISSN: 0270-7314
DOI: 10.1002/fut.3990070307

No coin nor oath required. For personal study only.

✦ Synopsis

Premium and Unstable

Systematic Risk* Jacky C. So his article documents significant nonstationarity of systematic risk for the T wheat, corn and soybean futures contracts traded on the Chicago Board of Trade during the 1953-1976 period. The risk premium, however, remains insignificant statistically when the Hildreth and Houck (1968) random coefficient method is applied to improve the risk estimates. Our findings also indicate that the commodity price support programs and seasonality in the 1950s and early 1960s may have had significant influences on the nonstationarity.

I. INTRODUCTION

Considerable controversy exists over the significance of the risk premium in the futures market. Cootner (1960) found evidence to support the Keynesian normal backwardation theory (Keynes, 1930) that speculators are awarded premia for absorbing risk, but the results obtained by Telser (1958, 1960) were contrary. Using the Capital Asset Pricing Model (CAPM), Dusak (1973) has found that the risk premia for the futures contracts for wheat, corn and soybeans traded on the Chicago Board of Trade are not significant statistically. Her methodology is criticized by Carter, Rausser and Schmitz (1983), despite the fact that the systematic risk concept is more theoretically sound than the total risk concept of Keynes.

Carter, Rausser and Schmitz (CRS) have recommended a stochastic regression and a multi-index model to capture the changing positions (long and short) of *The author thanks Radeliffe Edmonds and the referees of this Journal for valuable suggestions and comments. Jay Sheu provides computer assistance. Conversations with Neil Myer were also helpful to the author. This project is supported by the Graduate School, Southern Illinois University at Edwardsville. The author is solely responsible for atly ermrs in this study.

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