Abstract
We document that instrumental variables known to possess forecast power in equity and bond markets (Treasury bill yields, equity dividend yields, and the 'junk' bond premium) also possess forecast power for prices in agricultural, metals, and currency futures markets. The pattern of forecastability in futures is consistent with economic equilibrium as embodied by a two-'latent-variable' model. We test whether the latent variables that explain these futures returns coincide with latent variables that explain returns on size-ranked equity portfolios. This hypothesis is rejected, suggesting that futures are subject to different sources of priced risk than are equities.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 169-193 |
| Number of pages | 25 |
| Journal | Journal of Financial Economics |
| Volume | 32 |
| Issue number | 2 |
| DOIs | |
| State | Published - 1992 |
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ASJC Scopus subject areas
- Accounting
- Strategy and Management
- Economics and Econometrics
- Finance
Cite this
Time-varying risk premia and forecastable returns in futures markets. / Bessembinder, Hendrik; Chan, Kalok.
In: Journal of Financial Economics, Vol. 32, No. 2, 1992, p. 169-193.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Time-varying risk premia and forecastable returns in futures markets
AU - Bessembinder, Hendrik
AU - Chan, Kalok
PY - 1992
Y1 - 1992
N2 - We document that instrumental variables known to possess forecast power in equity and bond markets (Treasury bill yields, equity dividend yields, and the 'junk' bond premium) also possess forecast power for prices in agricultural, metals, and currency futures markets. The pattern of forecastability in futures is consistent with economic equilibrium as embodied by a two-'latent-variable' model. We test whether the latent variables that explain these futures returns coincide with latent variables that explain returns on size-ranked equity portfolios. This hypothesis is rejected, suggesting that futures are subject to different sources of priced risk than are equities.
AB - We document that instrumental variables known to possess forecast power in equity and bond markets (Treasury bill yields, equity dividend yields, and the 'junk' bond premium) also possess forecast power for prices in agricultural, metals, and currency futures markets. The pattern of forecastability in futures is consistent with economic equilibrium as embodied by a two-'latent-variable' model. We test whether the latent variables that explain these futures returns coincide with latent variables that explain returns on size-ranked equity portfolios. This hypothesis is rejected, suggesting that futures are subject to different sources of priced risk than are equities.
UR - http://www.scopus.com/inward/record.url?scp=38249008741&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=38249008741&partnerID=8YFLogxK
U2 - 10.1016/0304-405X(92)90017-R
DO - 10.1016/0304-405X(92)90017-R
M3 - Article
AN - SCOPUS:38249008741
VL - 32
SP - 169
EP - 193
JO - Journal of Financial Economics
JF - Journal of Financial Economics
SN - 0304-405X
IS - 2
ER -