Time-varying risk premium: further evidence in agricultural futures markets
Research has provided mixed results regarding the presence of a time-varying risk premium in agricultural futures markets. In this article we test for the presence of a time-varying risk premium focusing on the properties of the underlying data. Our results show that accounting for the structural break in the 1970s plays a key role in the findings. In contrast to recent research, we find only limited evidence of time-varying risk premium. For a two-month horizon the corn, soybean meal and hog markets show no signs of a risk premium, while very weak support for a time-varying premium emerges in live cattle. For the four-month horizon, no evidence of a time-varying risk premium appears for any of the markets.
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Document Type: Research Article
Affiliations: Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, 326 Mumford Hall, IL 61801, USA
Publication date: 2009-03-01