The Sector Anatomy of Commodity Risk Premia

Abstract

We ask whether characteristic-based commodity risk premiums reflect sector exposures or commodity-specific information. Decomposing 48 characteristics across 46 commodity futures from 1987 to 2024 into sector-wide and sector-adjusted components, we find the two are complementary: neither alone prices unadjusted characteristic-managed returns, but together they do. The sector-adjusted channel earns alpha beyond standard commodity factor models; the sector-wide channel does not. The channels differ across the business cycle, and trader positions indicate partially segmented risk absorption: swap dealers offset producer hedging almost exclusively at the commodity level, managed money at both levels. Conventional sorts conflate two sources of pricing content.

Download

SSRN Preprint

Citation

Bianchi, Daniele, and Dennis Jung. The Sector Anatomy of Commodity Risk Premia Working paper.

@article{bianchi2025sectors,
  title={The Sector Anatomy of Commodity Risk Premia},
  author={Bianchi, Daniele and Jung, Dennis},
  journal={Available at SSRN},
  year={2025}
}