How to Time the Commodity Market
Skema Business School
Roel C. A. Oomen
Deutsche Bank AG
Warwick Business School
June 1, 2006
Journal of Derivatives & Hedge Funds, Vol. 16, No. 1, pp. 1-8, 2010
Over the past few years, commodity prices have experienced the biggest boom in half a century. In this paper we investigate whether it is possible by active asset management to take advantage of the unique risk-return characteristics of commodities, while avoiding their excessive volatility. We show that observing (and learning from) the actions of different groups of market participants enables an active asset manager to successfully 'time' the commodities market. We focus on the information contained in the Commitment of Traders report, published by the CFTC. This report summarizes the size and direction of the positions taken by different types of traders in different markets. Our findings indicate that there is indeed significant informational content in this report, which can be exploited by an active portfolio manager. Our dynamically managed strategies exhibit superior out-of-sample performance, achieving Sharpe ratios in excess of 1.0 and annualized alphas relative to the S&P 500 of around 15%.
Number of Pages in PDF File: 16
Keywords: commodities, active asset management, return predictability, Commitment of Traders report
JEL Classification: C32, G11, G14, E44, Q49working papers series
Date posted: June 22, 2006 ; Last revised: August 20, 2010
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo1 in 0.532 seconds