{"title":"Carbon pricing and the commodity risk premium","authors":"Qiao Wang","doi":"10.1016/j.jcomm.2024.100447","DOIUrl":null,"url":null,"abstract":"<div><div>This paper examines whether the carbon pricing risk factor is priced in the cross-section of commodity futures. By analyzing unexpected pricing shocks in carbon emission allowances, carbon pricing risk is indeed priced in commodity futures, with a significant positive risk premium. The analysis of carbon pricing risk loadings reveals that individual commodities' sensitivities to carbon pricing risk vary. Additionally, commodity-specific characteristics, such as basis and hedging pressure, impact these risk loadings. Finally, I demonstrate that a portfolio of commodity futures constructed based on carbon pricing beta provides superior out-of-sample hedging performance for climate change risk compared to alternative hedge portfolios using equities or ETFs.</div></div>","PeriodicalId":45111,"journal":{"name":"Journal of Commodity Markets","volume":"36 ","pages":"Article 100447"},"PeriodicalIF":3.7000,"publicationDate":"2024-11-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Commodity Markets","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S2405851324000667","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
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Abstract
This paper examines whether the carbon pricing risk factor is priced in the cross-section of commodity futures. By analyzing unexpected pricing shocks in carbon emission allowances, carbon pricing risk is indeed priced in commodity futures, with a significant positive risk premium. The analysis of carbon pricing risk loadings reveals that individual commodities' sensitivities to carbon pricing risk vary. Additionally, commodity-specific characteristics, such as basis and hedging pressure, impact these risk loadings. Finally, I demonstrate that a portfolio of commodity futures constructed based on carbon pricing beta provides superior out-of-sample hedging performance for climate change risk compared to alternative hedge portfolios using equities or ETFs.
期刊介绍：
The purpose of the journal is also to stimulate international dialog among academics, industry participants, traders, investors, and policymakers with mutual interests in commodity markets. The mandate for the journal is to present ongoing work within commodity economics and finance. Topics can be related to financialization of commodity markets; pricing, hedging, and risk analysis of commodity derivatives; risk premia in commodity markets; real option analysis for commodity project investment and production; portfolio allocation including commodities; forecasting in commodity markets; corporate finance for commodity-exposed corporations; econometric/statistical analysis of commodity markets; organization of commodity markets; regulation of commodity markets; local and global commodity trading; and commodity supply chains. Commodity markets in this context are energy markets (including renewables), metal markets, mineral markets, agricultural markets, livestock and fish markets, markets for weather derivatives, emission markets, shipping markets, water, and related markets. This interdisciplinary and trans-disciplinary journal will cover all commodity markets and is thus relevant for a broad audience. Commodity markets are not only of academic interest but also highly relevant for many practitioners, including asset managers, industrial managers, investment bankers, risk managers, and also policymakers in governments, central banks, and supranational institutions.
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