Risk and return in copper, platinum, and silver futures

The characteristics of the risk and return in copper, platinum, and silver commodity futures were examined. Based on the standard deviations of returns, the results showed that all 3 futures were riskier than average common stocks. The conventional belief that traders of commodity futures bear above-average risk was well supported by the metals futures data. The Sharpe performance measures indicated that the returns earned for bearing risk per unit of total risk for these contracts were generally less than those of common stocks. When the risks and returns for the 3 metals were analyzed within the context of the Sharpe (1964) and Lintner (1965) capital asset pricing model, a risk premium, commensurate with the systematic risk of each contract, was identified. Contrary to the findings of agricultural and livestock commodity futures studies, significant systematic risks ranging from .731 to 1.054 were found for these futures over the years from 1978 to 1983.