48 Pages Posted: 30 Apr 2008 Last revised: 19 Dec 2013
Date Written: April 22, 2010
This paper examines the combined role of momentum and term structure signals for the design of profitable trading strategies in commodity futures markets. With significant annualized alphas of 10.14% and 12.66% respectively, the momentum and term structure strategies appear profitable when implemented individually. With an abnormal return of 21.02%, a novel double-sort strategy that exploits both momentum and term structure signals clearly outperforms the single-sort strategies. This double-sort strategy can additionally be utilized as a portfolio diversification tool. Interestingly, the abnormal performance of the double-sort portfolios cannot be explained by a lack of liquidity or data mining and is robust to transaction costs and to different specifications of the risk-return trade-off.
Keywords: Commodity Futures, Momentum, Term Structure, Backwardation, Contango, Double-sort strategy
JEL Classification: G13, G14
Suggested Citation: Suggested Citation
Fuertes, Ana-Maria and Miffre, Joëlle and Rallis, Georgios, Tactical Allocation in Commodity Futures Markets: Combining Momentum and Term Structure Signals (April 22, 2010). Journal of Banking and Finance 34, 2530-2548 . Available at SSRN: https://ssrn.com/abstract=1127213 or http://dx.doi.org/10.2139/ssrn.1127213