COMMODITY RISK PREMIA AND THE VIX TERM STRUCTURE

I find that the VIX term structure conveys information about commodity risk premia. In particular, the time-varying shape of the VIX term structure, determined by the combination of its principal components, embeds superior priced information and predicts the excess returns of gold and oil futures incrementally to existing indicators. I show that simple managed gold and oil futures portfolios that dynamically adjust the risk exposure based on signals from the shape of the VIX term structure generate significant annualized risk-adjusted alphas of up to 9%. Robustness checks alleviate concerns that my findings are driven by e.g. the crisis period, recession periods or periods of geopolitical tensions.