Strategies Based on Momentum and Term Structure in Financialized Commodity Markets

Business and Economics Research Journal, 2016, vol. 7, no. 1, pp. 31-46.

16 Pages Posted: 23 Jul 2014 Last revised: 9 Apr 2016

See all articles by Adam Zaremba

Adam Zaremba

Montpellier Business School; Poznan University of Economics and Business; University of Cape Town

Date Written: March 25, 2016

Abstract

The aim of this paper is to investigate the impact of the financialization of commodity markets on the profitability of strategies based on momentum and term structure. The performance of an array of portfolios from double-sorts on non-commercial traders’ participation, historical returns and term spreads are tested against a risk model. The analysis covers the listing of 26 commodities in the period 1986–2013. First and foremost, the paper provides a fresh evidence for the validity of strategies based on momentum and term structure investing in commodity markets. Secondly, it proves that term structure strategies generate significantly higher performance results in non-financialized markets. Moreover, it supports the thesis that market financialization adversely affects momentum profits. The results are important in terms of tactical and strategic asset allocation in commodity markets. They imply that investors who implement momentum or term structure based strategies should also consider the composition of market participants.

Keywords: commodity futures, financialization, momentum, term structure, backwardation, contango, double-sort strategy

JEL Classification: G11, G13, Q02

Suggested Citation

Zaremba, Adam, Strategies Based on Momentum and Term Structure in Financialized Commodity Markets (March 25, 2016). Business and Economics Research Journal, 2016, vol. 7, no. 1, pp. 31-46., Available at SSRN: https://ssrn.com/abstract=2469407 or http://dx.doi.org/10.2139/ssrn.2469407

Adam Zaremba (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, Occitanie 34000
France

HOME PAGE: http://sites.google.com/view/adamzaremba

Poznan University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875
Poland

University of Cape Town

Cape Town
South Africa

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