Is Basis Risk Generally Higher or Lower for a Near-Month Futures Contract?

Basis risk is generally lower for a near-month futures contract compared to a far-month contract. This is because as the near-month contract approaches expiration, its price must converge with the spot price, a process mandated by arbitrage.

The time over which unexpected changes in the cost of carry or market expectations can occur is shorter. Far-month contracts have a longer time to expiration, allowing more opportunity for the spot and futures prices to diverge due to unforeseen events.