The geopolitical risk premium in the commodity futures market

In this study, we investigate the geopolitical risk premium in commodity futures market. By estimating exposure of cross-sectional excess returns on a historical index, find that commodities with low-risk betas generate 9.05% higher annual risk-adjusted than those high-risk betas. The results indicate low-geopolitical-risk-related contracts require extra compensation by risk-averse investors due to hedging demand. We also explore time-varying characteristics premium: It appears more pronounced during high-geopolitical-risk periods and before year 2000. Finally, exploit subcategories threats better explain variation do acts, making it main source premium.