Commodity Strategies Based on Momentum, Term Structure and Idiosyncratic Volatility
Cass Business School, City University London
EDHEC Business School
University of Las Palmas de Gran Canaria - Department of Quantitative Methods in Economics
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.
Number of Pages in PDF File: 41
Keywords: commodity futures, momentum, term structure, idiosyncratic volatility
JEL Classification: G13, G14working papers series
Date posted: December 14, 2011 ; Last revised: November 29, 2013
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