Abstract
AbstractIn this study, we investigate the geopolitical risk premium in the commodity futures market. By estimating the exposure of cross‐sectional commodity futures excess returns on a historical geopolitical risk index, we find that commodities with low‐risk betas generate 9.05% higher annual risk‐adjusted returns than those with high‐risk betas. The results indicate that low‐geopolitical‐risk‐related commodity futures contracts require extra compensation by risk‐averse investors due to hedging demand. We also explore the time‐varying characteristics of the geopolitical risk premium: It appears more pronounced during high‐geopolitical‐risk periods and before the year 2000. Finally, we exploit the subcategories of geopolitical risk and find that geopolitical threats better explain the variation of the geopolitical risk premium than do geopolitical acts, making it a main source of the geopolitical risk premium.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
