Basis-momentum

82 Pages Posted: 2 Apr 2015 Last revised: 12 Dec 2017

See all articles by Martijn Boons

Martijn Boons

New University of Lisbon - Nova School of Business and Economics

Melissa Porras Prado

Nova School of Business and Economics

Date Written: April 24, 2015

Abstract

We introduce a return predictor related to the slope and curvature of the futures term structure: basis-momentum. Basis-momentum strongly outperforms benchmark characteristics in predicting commodity spot and term premiums in the time series and cross section. Exposure to basis-momentum is priced among commodity-sorted portfolios and individual commodities. We argue that basis-momentum captures imbalances in the supply and demand of futures contracts that materialize when the market-clearing ability of speculators and intermediaries is impaired, and that basis-momentum represents compensation for priced risk. Our findings are inconsistent with alternative explanations based on storage, inventory, and hedging pressure.

Keywords: Basis-momentum, term structure of commodity futures returns, maturity-specific price pressure, commodity factor pricing model, volatility risk

JEL Classification: G12, G13

Suggested Citation

Boons, Martijn and Porras Prado, Melissa, Basis-momentum (April 24, 2015). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2587784 or http://dx.doi.org/10.2139/ssrn.2587784

Martijn Boons (Contact Author)

New University of Lisbon - Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Melissa Porras Prado

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Register to save articles to
your library

Register

Paper statistics

Downloads
1,679
Abstract Views
5,835
rank
9,517
PlumX Metrics