Time-varying risk premia and forecastable returns in futures markets

Research output: Contribution to journalArticle

99 Citations (Scopus)

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 languageEnglish (US)
Pages (from-to)169-193
Number of pages25
JournalJournal of Financial Economics
Volume32
Issue number2
DOIs
StatePublished - 1992

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Time-varying risk
Risk premia
Equity
Futures markets
Latent variables
Bond market
Premium
Currency
Economic equilibrium
Equity markets
Dividend yield
Instrumental variables
Metals
Latent variable models
Junk bonds

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 journalArticle

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