ABSTRACT
The nature of risk and returns, and how to measure them in investment markets, has been discussed for many years. Regarding commodity futures markets, Keynes (1930) first proposed that speculators earned a risk premium as their reward for absorbing hedgers' risks. Gray (1961) could not find the suggested price biases required to support Keynes's underlying hypothesis. Rockwell (1967) measured rates of return for groups of traders in commodity futures markets with semi-monthly data, but did not examine risks. Futures contracts have long been recognized for their ability to transfer risk from hedgers to speculators, but little is known about the risk and return relationship and how it changes over investment horizons.
