{"title":"Commodity Futures Characteristics and Asset Pricing Models","authors":"Qin Yiyi, Jun Cai, Jie Zhu, Robert Webb","doi":"10.1002/fut.22559","DOIUrl":null,"url":null,"abstract":"<div>\n \n <p>A latent-factor model based on the instrumented principal component analysis (IPCA) methodology of Kelly et al. outperforms existing factor models in explaining cross-sectional variations in commodity futures returns. The model allows for observed commodity futures characteristics to work as instruments for unobservable dynamic factor loadings. We find that the relationship between characteristics and commodity futures returns is driven by compensation for exposure to latent risk factors (beta) rather than compensation for exposure to mispricing (alpha). Three latent factors deliver more powerful explanations than any number of observable factors. Among a collection of 20 characteristics, only three are significantly related to latent factor betas. These three characteristics are momentum, expected shortfall, and idiosyncratic volatility.</p>\n </div>","PeriodicalId":15863,"journal":{"name":"Journal of Futures Markets","volume":"45 3","pages":"176-207"},"PeriodicalIF":1.8000,"publicationDate":"2025-01-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Futures Markets","FirstCategoryId":"96","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1002/fut.22559","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
A latent-factor model based on the instrumented principal component analysis (IPCA) methodology of Kelly et al. outperforms existing factor models in explaining cross-sectional variations in commodity futures returns. The model allows for observed commodity futures characteristics to work as instruments for unobservable dynamic factor loadings. We find that the relationship between characteristics and commodity futures returns is driven by compensation for exposure to latent risk factors (beta) rather than compensation for exposure to mispricing (alpha). Three latent factors deliver more powerful explanations than any number of observable factors. Among a collection of 20 characteristics, only three are significantly related to latent factor betas. These three characteristics are momentum, expected shortfall, and idiosyncratic volatility.
期刊介绍：
The Journal of Futures Markets chronicles the latest developments in financial futures and derivatives. It publishes timely, innovative articles written by leading finance academics and professionals. Coverage ranges from the highly practical to theoretical topics that include futures, derivatives, risk management and control, financial engineering, new financial instruments, hedging strategies, analysis of trading systems, legal, accounting, and regulatory issues, and portfolio optimization. This publication contains the very latest research from the top experts.
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