Time-Varying Risk Premiums and Term Premiums in Commodity and VIX Futures

Abstract

Term premiums--the excess return of long-dated futures over short-dated futures--in commodity and VIX futures are strongly predictable, both in the time-series and the cross section. Strategies that exploit this predictability show sizable Sharpe ratios and are uncorrelated with strategies that exploit predictability in risk premiums (contango and backwardation).