Investment horizon and portfolio choice of private investors

I empirically investigate the impact of age and self-reported planning horizon on asset allocation decisions of individual investors. I find that age and investment horizon play different roles in determining investors' risky portfolios. When I consider total risky investments, including real estate, the share of risky assets declines with age. Planning horizon tends to influence only investments in financial risky assets, such as stocks, options, and mutual funds. A longer planning horizon leads to an increasing share of risky financial investments. Finally, less risk-averse investors and individuals with lower rate of time preference invest significantly more in stocks and other risky financial assets

Risk premiums and returns in futures markets: evidence from the financial crisis

The main purpose of this paper is to analyze the returns to investors trading in commodities futures during the period of the recent financial crisis and stock market decline. Using nonparametric statistical procedures, we find that the speculators could earn a consistent risk premium, which supports normal backwardation theory. We analyze the magnitude of the speculators' realized returns by comparing the performance of 21 semimonthly commodity futures return series and futures indices. These are based on both "long-only" and "conditional on hedging position" basis covering the period from January 2007 to July 2009. The speculative position, conditional on hedging demand, earned an annualized return of 11.99%, while the "long-only" position resulted in a return of -3.45%. Over the same time period, the S&P 500 index declined at an annual rate of 15.43%. Our evidence supports the argument in favour of using commodities futures as part of the overall investment portfolio

Hedging long-term commodity risk

This study focuses on the problem of hedging longer-term commodity positions, which often arises when the maturity of actively traded futures contracts on this commodity is limited to a few months. In this case, using a rollover strategy results in a high residual risk, which is related to the uncertain futures basis. We use a one-factor term structure model of futures convenience yields in order to construct a hedging strategy that minimizes both spot-price risk and rollover risk by using futures of two different maturities. The model is tested using three commodity futures: crude oil, orange juice, and lumber. In the out-of-sample test, the residual variance of the 24-month combined spot-futures positions is reduced by, respectively, 77%, 47%, and 84% compared to the variance of a naïve hedging portfolio. Even after accounting for the higher trading volume necessary to maintain a two-contract hedge portfolio, this risk reduction outweighs the extra trading costs for the investor with an average risk aversion

Risk premiums and returns in futures markets: evidence from the financial crisis

The main purpose of this paper is to analyze the returns to investors trading in commodities futures during the period of the recent financial crisis and stock market decline. Using nonparametric statistical procedures, we find that the speculators could earn a consistent risk premium, which supports normal backwardation theory. We analyze the magnitude of the speculators' realized returns by comparing the performance of 21 semimonthly commodity futures return series and futures indices. These are based on both "long-only" and "conditional on hedging position" basis covering the period from January 2007 to July 2009. The speculative position, conditional on hedging demand, earned an annualized return of 11.99%, while the "long-only" position resulted in a return of -3.45%. Over the same time period, the S&P 500 index declined at an annual rate of 15.43%. Our evidence supports the argument in favour of using commodities futures as part of the overall investment portfolio