Munich Personal RePEc Archive

Fear of Hazards in Commodity Futures Markets

Fernandez-Perez, Adrian and Fuertes, Ana-Maria and Gonzalez-Fernandez, Marcos and Miffre, Joelle (2019): Fear of Hazards in Commodity Futures Markets.

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We examine the commodity futures pricing role of active attention to weather, disease,geopolitical or economic threats or “hazard fear” as proxied by the volume of internet searches by 149 query terms. A long-short portfolio strategy that sorts the cross-section of commodity futures contracts according to a hazard fear signal captures a significant premium. This commodity hazard fear premium reflects compensation for extant fundamental, tail, volatility and liquidity risks factors, but it is not subsumed by them. Exposure to hazard-fear is strongly priced in the cross-section of commodity portfolios. The hazard fear premium exacerbates during periods of adverse sentiment or pessimism in financial markets.

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