Premium
New Evidence on Agricultural Commodity Return Performance under Time‐Varying Risk
Author(s) -
Bjornson Bruce,
Carter Colin A.
Publication year - 1997
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1244432
Subject(s) - economics , hedge , commodity , capital asset pricing model , inflation (cosmology) , risk premium , econometrics , investment (military) , agriculture , financial economics , monetary economics , finance , ecology , physics , politics , theoretical physics , political science , law , biology
Holding commodity stocks is a major investment that commodity producers, merchants, and processors must continually manage. In this paper we study the conditional risk and return characteristics of commodities. We use a generalized method of moments estimator in a model of conditional expected returns under a single‐beta asset pricing theory framework, allowing both the risk premium and the beta to vary with time. We find that expected returns to commodities are lower during times of high interest rates, expected inflation, and economic growth. This suggests that commodities provide a natural hedge against business cycles.