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Variance risk in commodity markets

Prokopczuk, M., Symeonidis, L. and Wese Simen, C. (2017) Variance risk in commodity markets. Journal of Banking and Finance, 81. pp. 136-149. ISSN 0378-4266

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To link to this item DOI: 10.1016/j.jbankfin.2017.05.003

Abstract/Summary

We analyze the variance risk of commodity markets. We construct synthetic variance swaps and find significantly negative realized variance swap payoffs in most markets. We find evidence of commonalities among the realized payoffs of commodity variance swaps. We also document comovements between the realized payoffs of commodity, equity and bond variance swaps. Similar results hold for expected variance swap payoffs. Furthermore, we show that both realized and expected commodity variance swap payoffs are distinct from the realized and expected commodity futures returns, indicating that variance risk is unspanned by commodity futures.

Item Type:Article
Refereed:Yes
Divisions:Henley Business School > ICMA Centre
ID Code:70494
Publisher:Elsevier

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