Commodity Strategies Based on Momentum, Term Structure and Idiosyncratic Volatility

Journal of Futures Markets, 2015, 35, 3, 274-297

41 Pages Posted: 14 Dec 2011 Last revised: 10 Nov 2015

See all articles by Ana-Maria Fuertes

Ana-Maria Fuertes

Bayes Business School, City, University of London

Joëlle Miffre

Audencia Business School

Adrian Fernandez-Perez

Auckland University of Technology

Date Written: November 1, 2013

Abstract

This article demonstrates that momentum, term structure and idiosyncratic volatility signals in commodity futures markets are not overlapping which inspires a novel triple-screen strategy. We show that simultaneously buying contracts with high past performance, high roll-yields and low idiosyncratic volatility, and shorting contracts with poor past performance, low roll-yields and high idiosyncratic volatility yields a Sharpe ratio over the 1985 to 2011 period which is five times that of the S&P-GSCI. The triple-screen strategy dominates the double-screen and individual strategies and this outcome cannot be attributed to overreaction, liquidity risk, transaction costs or the financialization of commodity futures markets.

Keywords: commodity futures, momentum, term structure, idiosyncratic volatility

JEL Classification: G13, G14

Suggested Citation

Fuertes, Ana-Maria and Miffre, Joelle and Fernandez-Perez, Adrian, Commodity Strategies Based on Momentum, Term Structure and Idiosyncratic Volatility (November 1, 2013). Journal of Futures Markets, 2015, 35, 3, 274-297, Available at SSRN: https://ssrn.com/abstract=1971917 or http://dx.doi.org/10.2139/ssrn.1971917

Ana-Maria Fuertes

Bayes Business School, City, University of London ( email )

Faculty of Finance
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London, EC1Y 8TZ
United Kingdom
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Joelle Miffre (Contact Author)

Audencia Business School ( email )

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Nantes Cedex 3, 44312
France

Adrian Fernandez-Perez

Auckland University of Technology ( email )

AUT City Campus
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Auckland, 1142
New Zealand
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+64 9 921 9940 (Fax)