PRICING TERM STRUCTURE RISK IN FUTURES MARKETS

One-period expected returns on futures contracts with different maturi ties differ because of risk premia in the spreads between futures and spot prices. We analyze the expected returns for futures contracts wit h different maturities using the information that is present in the cu rrent term structure of futures prices. A simple affine one-factor mod el that implies a constant covariance between the pricing kernel and t he cost-of-carry cannot be rejected for heating oil and German Mark fu tures contracts. For gold and soybean futures, the risk premia depend on the slope of the current term structure of futures prices, while fo r live cattle futures, the evidence is mixed.