Faculty of Business Administration
FBA Distinguished Scholar Seminar
Hosted by The Business Research and Training Center


Relative Basis and Risk Premia in Commodity Futures Markets

Prof. Ke Tang
Professor and Director of the Institute of Economics,  
Tsinghua University, China

Date: Wednesday, 12 May 2021
Time: 3:30 p.m.
Format: Online via Zoom

Online registration:



We propose a novel measure of the basis, namely the relative basis, as a more precise measure of the convenience yield on commodity markets. The relative basis is defined as the difference between the traditional basis, which is based on the first- and second-nearby futures prices, and a similarly-defined longer-term basis that is based on the second- and third-nearby futures contracts. We argue that the relative basis is a better proxy for the convenience yield because it excludes components in the traditional basis that are related to storage and financing costs. We find that the relative basis exhibits significant return predictability on commodity futures markets — it can subsume the traditional basis in forecasting commodity futures returns in both return predicting regressions and factor portfolio tests. Our empirical findings are robust to a variety of robustness tests and provide strong support to the Theory of Storage on commodity markets.


Ke Tang is a Professor and Director of the Institute of Economics, School of Social Science, Tsinghua University, where he teaches courses in economics and finance.  His research has covered such topics as: commodity markets, big data and AI in economics. Prof. Tang has published papers in many top journals including Journal of Finance, Review of Financial Studies, Annual Review of Financial Economics, Financial Analyst Journal, Journal of Banking and Finance etc. He is also a frequent participator in various policy-related conferences held by institutions such as United Nations, OECD, European Committee and FAO etc. He currently serves as the managing editor of Quantitative Finance and the associate editor of Journal of Commodity Markets.