Skewness, Betas, and Commodity Futures Returns

Skewness is one of the strongest predictors of commodity futures returns. The popular behavior‐based explanation is that investors have a preference for positive skewness, which causes positively skewed commodity futures to become overpriced and subsequently earn lower expected returns. We regress skewness on estimated betas from a conditional seven‐factor model that allows betas to vary with characteristics. The fitted values from these regressions are referred to as beta components , while the residuals represent non‐beta components . Standard Fama–MacBeth regressions and portfolio‐sorting analyses show that the predictive power of skewness is exclusively driven by its beta components, suggesting that skewness primarily captures systematic risk.