Exploiting Commodity Momentum Along the Futures Curves

Abstract

This study examines novel momentum strategies in commodities futures markets that incorporate term-structure information. We show that momentum strategies that invest in contracts on the futures curve with the largest expected roll-yield or the strongest momentum earn significantly higher risk-adjusted returns than a traditional momentum strategy, which only invests in the nearest contracts. Moreover, when incorporating conservative transaction costs we observe that our low-turnover momentum strategy more than doubles the net return compared to a traditional momentum strategy.

Keywords: commodity futures, momentum, term structure, futures curve, roll yield, backwardation, contango, transaction costs

JEL Classification: G11, G13, G14