Economic news and the cross-section of commodity futures returns

This paper examines whether the economic news pessimism risk factor is priced by the investors in the cross-section of commodity futures returns. Using a unique economic news dataset, we find that the pessimism risk factor is priced in a range of commodity portfolios. Our analysis reveals a strong asymmetric effect of news on the commodity futures excess returns, and commodities with low basis, low momentum, low open interest and high volatility are exposed to negative news risk. We show that trading on pessimistic news yields meaningful profits that are unexplained by the market, basis and momentum factors.