Scandinavian Working Papers in Economics

UiS Working Papers in Economics and Finance,
University of Stavanger

No 2015/13: Production Risk and the Futures Price Risk Premium?

Frank Asche (), Bard Misund () and Atle Oglend ()
Additional contact information
Frank Asche: UiS, Postal: University of Stavanger, NO-4036 Stavanger, Norway
Bard Misund: UiS, Postal: University of Stavanger, NO-4036 Stavanger, Norway
Atle Oglend: UiS, Postal: University of Stavanger, NO-4036 Stavanger, Norway

Abstract: Typically, the risk premium in futures prices is examined by regressing the ex post risk premium on the ex ante spot-futures price basis. However, recent studies suggest that industry specific production factors as well as the basis can influence the relationship between spot and futures prices. The Atlantic salmon market is a market where risk associated with special production characteristics may affect the spot-forward relationship. Futures markets have recently been introduced for aquaculture products, and an understanding of the specific risk factors is important if these markets are to succeed. Using spot and futures prices as well as a set of industry specific variables, we seek to explain the variation in the risk premium in salmon futures by the variation in the basis. We find that shocks in key production variables help explain the variation in the risk premium along the forward curve.

Keywords: Atlantic salmon markets; Forward prices; Risk premium

JEL-codes: G13; G14; Q22

30 pages, December 18, 2015

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uis_wps_2015_13_asche_misund_ogland.pdf PDF-file

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