Risk premia-return spillovers among commodity-U.S. equity markets

This study examines the risk premia-return spillovers of eight commodities (corn, soybean, wheat, copper, silver, gold, oil, and natural gas) and the U.S. equity market from 2008 to 2016. We define volatility, skewness, and kurtosis risk premia as the difference between implied and realized moments. Our results reveal an increasing trend in cross-market and cross-moment spillovers until mid-2012, with various announcements explaining these effects. Moreover, we document substantial cross-energy and cross-metal spillovers to the equity market and cross-return spillovers to risk premia. Higher-order risk premia also exhibit the highest effects on returns. In addition, we underline the prominent influence of the metal sector on the grain and energy commodity sectors. Finally, we demonstrate that investors can create profitable trading strategies, especially on skewness risk premia, by accounting for the cross-market and -moment spillovers.