Fear of Hazards in Commodity Futures Markets

Adrian Fernandez-Perez (1) , Ana-Maria Fuertes (2) , Marcos Gonzalez-Fernandez , Joelle Miffre (3)

1 AUT - Auckland University of Technology
2 Sir John Cass Business School
3 Audencia Business School

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.

Mots clés: Commodity futures; Fear; Attention; Hazards; Internet searches; Sentiment; Long-short portfolios

Domaines: Sciences du Vivant [q-bio]; Économie et finance quantitative [q-fin]; Pricing [q-fin.PR]

Adrian Fernandez-Perez, Ana-Maria Fuertes, Marcos Gonzalez-Fernandez, Joelle Miffre. Fear of Hazards in Commodity Futures Markets. Journal of Banking and Finance, 2020. ⟨hal-02931680⟩