A0768
Title: Hazard fear in commodity markets
Authors: Ana-Maria Fuertes - City University London (United Kingdom) [presenting]
Adrian Fernandez-Perez - Auckland University of Technology (New Zealand)
Joelle Miffre - Audencia Business School (France)
Marcos Gonzalez-Fernandez - Universidad de Leon (Spain)
Abstract: The aim is to introduce a commodity futures return predictor related to fear about impending weather, disease, geopolitical and economic hazards that can shift the commodity supply or demand. Exploiting the commodity hazard-fear characteristic as a trading signal in a long-short portfolio framework, we find a sizeable and significant commodity premium. The hazard-fear premium reflects compensation for known factors such as basis, momentum and illiquidity risks, but is not subsumed by them. Exposure to hazard-fear is strongly priced in the cross-section of individual commodity futures returns and commodity portfolios beyond known risk factors. We identify a strong role for general investor sentiment in the commodity hazard-fear premium.
