Subjective Risk Premia and Intermediary Asset Pricing: Evidence From Commodity Markets.
June 2025.
Abstract: Can financial intermediaries explain the dynamics of subjective risk premia in sophisticated asset classes? Using commodity markets as a laboratory, I show that the financial health of intermediaries, particularly primary dealers, plays a crucial role in driving subjective risk premia. However, as the composition of institutional investors shifted during the "financialization" of commodity markets, the importance of primary dealers declined, while that of non-primary dealers increased. These findings, in line with prominent intermediary asset pricing theories, reveal financial intermediaries as a novel source of variation in subjective risk premia and emphasize the importance of intermediary heterogeneity in asset pricing.
Presentations: AEFIN Finance Forum (2025,Scheduled); Monash Business School (2024); Bank of Italy (2024); CSEF (2024); CUNEF University (2024); WU Vienna (2024); EEA (2024); EFMA (2024); IRMC (2024); PEJ (2024); Nova Finance Browbag (2023); HEC Paris Finance PhD Workshop (2023); Nova Finance PhD Workshop (2023); Kelley Finance PhD Brownbag (2023).
Commodity Returns: Lost in Financialization.
with Fahiz Baba-Yara (Indiana University); June 2024. [New draft coming soon].
Abstract: The flow of institutional investors and index capital into the commodity futures market dramatically increased around 2004. This event is referred to as the financialization of commodity markets. We study how this growth in investment capital has affected average returns in the asset class by examining how average returns to popular commodity futures trading strategies have evolved over time. We find that about 80% of commodity futures strategies that earned statistically significant average returns pre-financialization are no more profitable afterward. We show that this decline in strategy returns can be wholly explained by an adverse change in the average returns to a handful of systematically priced factors in the cross-section of commodity futures. This result suggests that the decline in strategy returns cannot be attributed to the disappearance of mispricing. We further show that commodity strategies that have relatively higher exposure to the Dow Jones Commodity Index experience a significant decline in average returns. In robustness tests, we show that the publication of commodity strategies in the academic literature can only explain about 25% of the reduction in commodity futures strategy returns.
Presentations: JPMCCEM* (2025,Scheduled), EEA (2025,Scheduled), AFFI (2025), IRMC (2025); Commodity Markets Winter Workshop (2025); CUNEF University (2024); CEMA* (2024); AEFIN Finance Forum (2023); EFMA (2023); FMCG (2023); Kelley Finance Brownbag* (2023); Eastern FA* (2023); Southwestern FA* (2023); AFBC* (2022); Nova Finance PhD Pitch Perfect (2022).
*Indicates presentation by coauthor.
In Search of Sparsity: Bayesian Sparse Factor Models and the Factor Zoo.
with Fahiz Baba-Yara (Indiana University) and Robert Hill (Bank of Canada).
(Peer-Reviewed).
Commodity Tail-Risk and Exchange Rates.
with Giovanni Rillo (LUISS University); Finance Research Letters^, June 2022.
^ “Class A” journal according to the 2022 ABDC Journal Quality List and the 2022 Italian Ranking of Economics Journals (ANVUR).
[PhD Publication: Spin-off of the 2nd year PhD summer paper].
Abstract: This paper studies the downside tail-risk relationship between currencies and commodities. In order to do so, we use the novel MCoVaR with Elastic-Net of Bonaccolto et al. (2021) to simultaneously account for the potential ties among a large set of commodities. We show that exchange rates are significantly exposed to downside tail-risk with respect to several commodities, including, but not limited to, oil and gold. Additionally, we find that different exchange rates are vulnerable to tail-risk in different commodities. Lastly, the results with respect to gold indicate that the Japanese yen and the Swiss franc can be considered safe-haven assets.