The authors model the effect on nonperformance risk on forward and futures pricing and look for evidence of nonperformance risk in precious metals futures prices from the "Hunt Brothers" episode. Changes in default premiums are measured and related to the sequence of events in the metals markets during this period. Results suggest that ex ante costs of nonperformance can be a significant, priced factor in commodity markets and that the arrival of new information is often associated with changes in these costs. The evidence has implications for both theoretical and empirical research on commodity markets.

The authors provide evidence that the spread between commodity spot and futures prices (the basis) reflects the macroeconomic risks common to all asset markets. The basis of many commodities is correlated with the stock index dividend yield and corporate bond quality spread. Explanatory power is related to exposure to macroeconomic fluctuations: about 40 percent of the variation in the basis of a portfolio of commodities with high business cycle sensitivity is explained by the stock and bond yields. Further diagnostics indicate that these associations are largely due to the presence of risk premiums, rather than spot price forecasts, in the basis.

ABSTRACT The Canada Income Tax Act of 1971 permitted Canadian corporations to create two classes of equity, one paying ordinary cash income and the other paying capital gains income. Cash‐paying shares have often sold at a premium. Empirical results indicate that the premium is largely explained by the relative value of the dividends paid and by costs imposed on investors by stock dividend payment and share conversion procedures. Premiums for a few firms also reflect the relative liquidity of the two classes of shares. No evidence exists that investors prefer cash income to equal amounts of capital gains.

ABSTRACT Option‐pricing models that assume a constant interest rate may misprice futures options if the interest rate fluctuates significantly or if the price of the underlying asset is correlated with the interest rate. The futures option‐pricing model of Ramaswamy and Sundaresan allows for a stochastic interest rate and correlation of the underlying asset's price with the interest rate. Using a data set of daily closing prices for Comex gold futures options, this paper tests the Ramaswamy and Sundaresan model against a constant interest rate model. Results indicate that the stochastic interest rate model is a superior predictor of market prices.

ABSTRACT We model the effect of nonperformance risk on forward and futures pricing and look for evidence of nonperformance risk in precious metals futures prices from the “Hunt Brothers”episode. Changes in default premiums are measured and related to the sequence of events in the metals markets during this period. Results suggest first that ex ante costs of nonperformance can be a significant, priced factor in commodity markets and second that the arrival of new information is often associated with changes in these costs. The evidence has implications for both theoretical and empirical research on commodity markets.

We provide evidence that the spread between commodity spot and futures prices (the basis) reflects the macroeconomic risks common to all asset markets. The basis of many commodities is correlated with the stock index dividend yield and corporate bond quality spread. Explanatory power is related to exposure to macroeconomic fluctuations: about 40 percent of the variation in the basis of a portfolio of commodities with high business cycle sensitivity is explained by the stock and bond yields. Further diagnostics indicate that these associations are largely due to the presence of risk premiums, rather than spot price forecasts, in the basis.

We provide strong support for the underappreciated expected earnings hypothesis of a negative correlation between aggregate stock returns and earnings. For 1970–2000, our powerful modeling strategy incorporating macroeconomic information reveals that aggregate returns are significantly and negatively correlated with expected aggregate earnings changes but uncorrelated with unexpected aggregate earnings changes. However, this negative correlation changes after 2000, perhaps from heightened volatility or accounting changes. We also show that underlying macroeconomic information explains the power of aggregate earnings to predict future gross domestic product growth.

We study the effects of barriers to capital flows using data from the Stock Exchange of Thailand, which segments local and foreign trading of securities that have reached foreign ownership limits. Cross-sectional differences between local and foreign prices are correlated with proxies for the severity of foreign ownership limits, liquidity, and information availability. Time-series variability in the spread between local and foreign returns is consistent with differences in risk exposures and expected risk premiums, suggesting effective capital market segmentation. The results have numerous implications for portfolio and direct investment activity in developing countries.