While much is known about the financialization of commodities, less is known about how to profitably invest in commodities. Existing studies of Commodity Trading Advisors (CTAs) do not adequately address this question because only 19% of CTAs invest solely in commodities, despite their name. We compare a novel four-factor asset pricing model to existing benchmarks used to evaluate CTAs. Only our four-factor model prices both commodity spot and term risk premia. Overall, our four-factor model prices commodity risk premia better than the Fama-French three-factor model prices equity risk premia, and thus is an appropriate benchmark to evaluate commodity investment vehicles.

• Conditionally accepted at the Journal of Futures Markets
• Supported by a grant from the Chicago Mercantile Exchange (CME) and support from the Vanderbilt Financial Markets Research Center.
• Presented at the UNC Institute for Private Capital Spring Research Conference (2016) in Chapel Hill, NC
• We are grateful for comments and suggestions from Craig Lewis, Nick Bollen, Bob Whaley, Luke Taylor, Adam Reed, Clemens Sialm, Vikas Agarwal, Jeff Busse, and Sophie Shive, as well as Rene Garcia, Abraham Lioui, Joelle Miffre and other EDHEC research workshop participants and Peter Shepard (Discussant). We benefitted from conversations with Christophe L’Ahelec.