Do Sectors Matter for Commodity Pricing?

Abstract

We assess the extent to which characteristic-based commodity risk premiums reflect sector exposures rather than commodity-specific information. Decomposing 48 characteristics across 46 commodity futures from 1987 to 2024 into sector-wide and sector-adjusted components, we find that the two are complementary. Neither alone prices the unadjusted characteristic-managed returns, but together they do. The sector-adjusted, commodity-specific channel earns significant alpha beyond standard commodity factor models, whereas the sector-wide channel does not. The channels differ in cyclical behavior and in how speculators absorb producer hedging, consistent with segmented risk transfer between distinct clienteles. Standard managed portfolios conflate these two sources of pricing content.

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Citation

Bianchi, Daniele, and Dennis Jung. Do Sectors Matter for Commodity Pricing? Working paper.

@article{bianchi2025sectors,
  title={Do Sectors Matter for Commodity Pricing?},
  author={Bianchi, Daniele and Jung, Dennis},
  journal={Available at SSRN},
  year={2025}
}